<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1997.
REGISTRATION STATEMENT 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
AMBASSADOR EYEWEAR GROUP, INC.
(Name of Small Business Issuer in Its Charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 5040 23-2807063
(State or Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
1010 ARCH STREET
PHILADELPHIA, PENNSYLVANIA 19107
(800) 523-4675
(Address and Telephone Number of Principal Executive Offices)
1010 ARCH STREET
PHILADELPHIA, PENNSYLVANIA 19107
(Address of Principal Place of Business or Intended Principal Place of Business)
MR. BARRY BUDILOV
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1010 ARCH STREET
PHILADELPHIA, PENNSYLVANIA 19107
(800) 523-4675
(Name, Address and Telephone Number of Agent for Service)
------------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
JEFFREY A. BAUMEL, ESQ. ROBERT H. COHEN, ESQ.
Crummy, Del Deo, Dolan, Griffinger & Vecchione Morrison Cohen Singer & Weinstein, LLP
One Riverfront Plaza 750 Lexington Avenue
Newark, New Jersey 07102 New York, NY 10022
(201) 596-4500 (212) 735-8600
</TABLE>
--------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
--------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
AMOUNT PROPOSED MAXIMUM AMOUNT
TITLE OF EACH CLASS TO BE MAXIMUM PRICE AGGREGATE OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SECURITY(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share............ 2,300,000(3) $6.00 $13,800,000 $4,182
Underwriter's Warrants............................ 200,000 $.001 $200 $.07
Shares of Common Stock underlying Underwriter's
Warrants........................................ 200,000 $6.60 $1,320,000 $400
Total Registration Fee............................ $4,582
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933, this Registration
Statement also covers such indeterminate number of additional securities, if
any, which may become issuable by virtue of the anti-dilution provisions of
the Underwriter's Warrants.
(2) Estimated solely for purposes of calculating registration fee.
(3) Includes 300,000 shares of Common Stock subject to an over-allotment option
granted to the Underwriter, one-half by the Registrant and one-half by the
Slucker Family Foundation, Inc.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION DATED JULY 15, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THOSE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO BUY NOR SHALL THERE
BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
2,000,000 SHARES
AMBASSADOR EYEWEAR GROUP, INC.
COMMON STOCK
------------------
Ambassador Eyewear Group, Inc., a Delaware corporation ("Ambassador" or the
"Company"), hereby offers 2,000,000 shares (the "Shares") of Common Stock, par
value $.01 per share (the "Common Stock"). It is currently contemplated that the
initial public offering price of the Common Stock will be $6.00 per Share. See
"Underwriting" for the factors to be considered in the determination of the
initial public offering price of the Shares.
Prior to this offering (the "Offering"), there has been no public market for
the Shares and there can be no assurance that an active market will develop.
Application has been made for listing of the Shares for quotation on the Nasdaq
National Market under the symbol "SPEX", subject to notice of issuance.
SEE "RISK FACTORS" LOCATED ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS(1) PROCEEDS TO COMPANY (2)
<S> <C> <C> <C>
Per Share................... $ $ $
Total (3)................... $ $ $
</TABLE>
(1) Does not include additional consideration to be received by Hampshire
Securities Corporation (the "Underwriter") in the form of (a) a 3%
non-accountable expense allowance and (b) warrants to purchase up to an
aggregate of 200,000 Shares (the "Underwriter's Warrants"). The Company has
agreed to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company of
$860,000, including the Underwriter's non-accountable expense allowance,
assuming no exercise of the Underwriter's over-allotment option.
(3) The Company has granted the Underwriter a 45-day option to purchase up to an
additional 150,000 Shares and the Slucker Family Foundation, a stockholder
of the Company, has granted the Underwriter a 45-day option to purchase an
additional 150,000 Shares, on the same terms and conditions as set forth
herein, solely to cover over-allotments, if any. If the Underwriter
exercises such option in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The Shares are being offered by the Underwriter, subject to prior sale,
when, as and if delivered to, and accepted by it, and subject to its right to
reject orders in whole or in part and to certain other conditions. It is
expected that delivery of certificates will be made against payment therefor at
the offices of Hampshire Securities Corporation on or about , 1997.
------------------------
HAMPSHIRE SECURITIES CORPORATION
----------------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SHARES, INCLUDING
PURCHASES OF THE SHARES TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE SHARES
TO COVER SOME OR ALL OF A SHORT POSITION IN THE SHARES MAINTAINED BY THE
UNDERWRITER AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
This Prospectus refers to various registered trademarks that are owned by
parties other than the Company.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN
THIS PROSPECTUS ASSUMES THAT THE UNDERWRITER'S OVER-ALLOTMENT OPTION IS NOT
EXERCISED AND REFLECTS A 1,166 2/3-FOR-ONE STOCK SPLIT EFFECTED AS OF JUNE 30,
1997. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER "RISK FACTORS."
THE COMPANY
The Company designs, sources, markets and distributes high quality
prescription eyeglass frames and non-prescription sunglasses to department and
specialty stores, optical chains and eyewear boutiques throughout the United
States. The Company also provides integrated marketing, merchandising materials
and consulting support to assist its customers in the sales of the Company's
eyewear products. The Company distributes its eyewear products to a broad and
substantial customer base including Wal-Mart, K-Mart, National Vision Associates
and U.S. Vision, as well as many regional chain stores and local outlets. The
Company has established relationships with various fashion designers, fashion
celebrities and marketing organizations including Kathy Ireland, Halston, and
the John Lennon Estate and highly recognizable consumer products brands such as
Playskool, Nintendo and international jewelry designer Kenneth Jay Lane. The
Company intends to continue to identify and license trade names and trademarks
from various high profile brand sources in an effort to target and capture
additional segments of the eyewear market.
The Company utilizes a diverse team of freelance experienced fashion eyewear
designers to work with fashion houses, celebrities, manufacturers and
experienced members of the optical industry to design eyewear styles that convey
fashion, elegance and sophistication. The Company's eyeglass frames and
sunglasses are manufactured at a variety of independent factories throughout the
world. The Company distributes products through independent sales
representatives situated throughout the world and intends to increase the size
of its dedicated sales force, expand its sales and marketing capabilities and
develop additional alliances with fashion designers and licensors.
In 1996, approximately 60% of the nation's population used some form of
corrective eyewear. Retail sales of eyewear products totaled $14.6 billion in
1996, up from $13.8 billion in 1995, representing a 5.8% increase. Furthermore,
it is generally accepted that vision deteriorates with age. As the American
population ages, demand for corrective eyewear will continue to grow at a rapid
rate. In addition, the growing medical and public concern with respect to
exposure to harmful sun rays has led to an increase in the sale of sunglasses,
reaching $2.95 billion in 1996, representing an 8% increase from 1995.
The Company's business strategy is to become a leading source of eyewear
distribution in the United States and globally. The Company intends to focus on
(i) growth through the acquisitions of businesses and companies that will
complement its business; (ii) the continued development of relationships with
distributors throughout the world; and (iii) expanding its products base by
seeking and negotiating licenses with high fashion and highly recognizable brand
names and licensors. In particular, the Company intends to increase its sales of
sunglasses by increasing substantially the size of its sunglass product line and
its sunglass distribution network. The Company has accomplished a great deal of
its growth through the acquisition of other eyewear distributors that are
similarly situated. In June 1996, the Company acquired substantially all of the
assets of Windsor Optical, Inc. ("Windsor") and in February 1997, the Company
acquired substantially all of the assets of Renaissance Eyewear Group
("Renaissance") from the secured creditor of Renaissance, thereby increasing
substantially its sales base and available resources. The Company also assumed
certain liabilities of Windsor. Renaissance had total sales of approximately $14
million during its fiscal year ended October 31, 1996 of which approximately
$2.5 million were sunglass products during such period. Through the acquisition
of substantially all of the assets of Renaissance and the establishment of
licensing arrangements and employment agreements as a result of such
acquisition, the Company not only expanded its sales base, but also its product
lines to include additional designer product lines and sunglasses. The Company
intends to continue to seek strategic acquisitions as a method of expanding its
market size and product lines.
<PAGE>
The Company was incorporated in Delaware in May 1995 as Diplomat Ambassador
Inc. when it acquired the business of Chanuk, Inc. ("Chanuk"), a Pennsylvania
corporation. On July 10, 1997, the Company changed its name to Ambassador
Eyewear Group, Inc. The principal executive offices of the Company are located
at 1010 Arch Street, Philadelphia, Pennsylvania 19107, and its telephone number
is (800) 523-4675.
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock Offered............... 2,000,000 shares(1)
Shares of Common Stock to be Outstanding
after the Offering......................... 5,500,000 shares (1)(2)
Use of Proceeds.............................. The Company intends to use the estimated net
proceeds from the Offering of $9,940,000
($10,723,000 if the Underwriter's
over-allotment option is exercised in full)
for (i) reduction of debt; (ii) expansion of
sales and marketing activities; (iii)
purchase of inventory; and (iv) general
corporate purposes, including working capital
and to finance potential acquisitions. See
"Use of Proceeds."
Risk Factors................................. Investment in the Common Stock offered hereby
involves a high degree of risk as well as
immediate and substantial dilution. See "Risk
Factors" and "Dilution".
Proposed Nasdaq National Market Symbol....... "SPEX"
</TABLE>
- ------------------------
(1) Assumes no exercise of the Underwriter's over-allotment option with respect
to Shares that would be offered by the Company.
(2) Excludes (i) 499,333 Shares issuable upon exercise of outstanding options,
(ii) 200,000 Shares issuable upon exercise of the Underwriter's Warrants and
(iii) 118,100 shares of Series A Cumulative Redeemable Preferred Stock
("Series A Preferred Stock"). See "Certain Relationships and Related Party
Transactions," "Description of Securities" and "Underwriting."
2
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table presents summary historical, pro forma and pro forma as
adjusted financial data for the Company. This information should be read in
conjunction with "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
notes thereto each included elsewhere herein.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 10, 1995 PRO FORMA
(INCEPTION) YEAR ENDED
THROUGH MARCH YEAR ENDED MARCH 31, 1997
31, 1996 MARCH 31, 1997 (1)
-------------- -------------- -----------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF INCOME DATA:
Net Sales.................................................. $ 11,005 $ 16,455 $ 29,129
Gross profit............................................... $ 4,609 $ 7,973 $ 14,108
Selling, general and administrative expenses............... $ 4,258 $ 6,145 $ 12,727
Income from operations..................................... $ 351 $ 1,828 $ 1,381
Net income (loss).......................................... $ (62) $ 727 $ 183
Net income (loss) per share................................ (.02) $ .19 $ .05
Weighted average number of shares outstanding (2).......... 3,865,000 3,865,000 3,865,000
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------
PRO FORMA
AS ADJUSTED
ACTUAL (3)
--------- --------------
<S> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital...................................................................... $ 1,898 $ 11,838
Total assets......................................................................... $ 20,927 $ 24,867
Long-term debt....................................................................... $ 409 $ 409
Series A Cumulative Redeemable Preferred Stock....................................... 0 $ 1,181
Total liabilities.................................................................... $ 20,620 $ 13,559
Stockholders' equity................................................................. $ 307 $ 10,247
</TABLE>
- ------------------------
(1) The pro forma unaudited condensed statement of operations reflects the
acquisitions of substantially all of the assets of Windsor and Renaissance
and the assumption of certain debt of Windsor as if such transactions had
occurred on April 1, 1996. The information contained herein should be read
in conjunction with the pro forma condensed statement of operations and the
notes thereto, the financial statements of the Company and of Renaissance
and the related notes thereto and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," each included elsewhere
in this Prospectus. The pro forma condensed statement of operations for the
year ended March 31, 1997 gives effect to the operations for each of the
Company, Renaissance and Windsor as if the acquisitions of substantially all
of the assets of Renaissance and Windsor had occurred on April 1, 1996, but
do not reflect the anticipated efficiencies of scale or other cost reduction
measures being implemented by the Company, the success of which cannot be
assured. However, no assurance can be given that any such efficiencies will
be achieved. The pro forma condensed statement of operations is presented
for informational purposes only, and is not necessarily indicative of what
the actual results of operations would have been had the transactions
occurred at April 1, 1996, nor do they purport to indicate the results of
future operations.
(2) See Note B(8) to the Company's Financial Statements.
(3) Adjusted to reflect the sale of the Shares offered by the Company hereby at
an assumed initial public offering price of $6.00 per Share and the
repayment of $6,380,000 of debt including up to $500,000 incurred subsequent
to March 31, 1997 with the proceeds therefrom. Gives effect to the
conversion of $1.18 million of indebtedness to two principal stockholders
into 118,100 shares of Series A Cumulative Redeemable Preferred Stock on the
effective date of this Offering. See "Use of Proceeds" and "Capitalization."
3
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OFFERED HEREBY. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INCLUDE RISKS AND UNCERTAINTIES. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE IDENTIFIED BELOW AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS.
RISKS RELATED TO SUBSTANTIAL INVENTORY, ACCOUNTS RECEIVABLE BALANCES AND
SUBSTANTIAL INDEBTEDNESS. As of March 31, 1997, the Company had an inventory of
$12 million consisting principally of eyeglass frames and sunglasses held at its
warehouse for distribution and accounts receivable valued at $7.4 million. The
market for eyewear and accessories is subject to the risk of changing consumer
trends. In order to be able to promptly fill orders from distributors, the
Company maintains substantial inventories. In the event that a significant
number of models or accessories do not achieve widespread consumer acceptance,
the Company may be required to take significant price markdowns, which could
have a material adverse effect on the Company's business, results of operations
and financial condition. The Company's balance sheet reflects a reserve against
accounts receivable of approximately $2.4 million which includes approximately
$560,000 to cover returns of goods sold. If the reserve is insufficient to cover
the Company's accounts receivable or if returns exceed the amounts reserved for,
the Company would be required to recognize additional expenses in the future to
the extent of such amounts. Of the net accounts receivable, for which a reserve
has not been taken, approximately 35% of such receivables are over 60 days old.
The Company has, from time to time, experienced cash flow shortfalls and has
been required to borrow substantial amounts from banks. The Company had total
liabilities of $20.6 million at March 31, 1997, $18.1 million of which are
current. Of such debt, approximately $12 million (excluding up to $500,000 of
debt extended after March 31, 1997) is payable to CoreStates Bank (the "Bank")
pursuant to the Company's revolving line of credit. During the year ended March
31, 1997 and the period from inception through March 31, 1996, the Company
incurred $738,000 and $474,000, respectively, in net interest expenses. The
credit line is secured by substantially all of the assets of the Company. The
credit facility is represented by demand notes payable to the Bank under which
the Bank may demand repayment at any time. The Company intends to reduce
outstanding borrowings from the Bank by approximately $6.1 million to the Bank
from the proceeds of this Offering. Nevertheless, if the Bank were to demand
repayment of the entire outstanding borrowings under the facility, which at June
30, 1997 was approximately $12.5 million, the Company would be required to
identify alternative financing to satisfy its repayment obligation of which
there can be no assurance. If it is unsuccessful in so identifying such
financing the Company may be required to cease operations. The loan agreement
with the Bank also contains provisions which restrict certain activities of the
Company, including the declaration of dividends and also provides for other
conditions for default, including the continuing participation of Rudy A.
Slucker, the Chairman of the Board of Directors and Barry Budilov, the President
and Chief Executive Officer, in their current management positions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Financial Statements.
CONTINUING LOSSES FROM RENAISSANCE OPERATIONS; POTENTIAL CLAIMS RELATING TO
PURCHASE OF ASSETS. The Company acquired substantially all of the assets of
Renaissance in February 1997 and has only recently begun to coordinate the
integration of the assets relating to the business of Renaissance into the
business of the Company. Renaissance has experienced substantial and increased
losses in recent years. For the Renaissance fiscal years ended October 31, 1996
and 1995, Renaissance had net losses of approximately $5.6 million and $200,000,
respectively. In addition, net sales for Renaissance declined to approximately
$14.1 million in the Renaissance fiscal year 1996 from approximately $17.4
million in the Renaissance fiscal year 1995. No assurance can be given that net
sales of products relating to product lines acquired from Renaissance will not
continue to decline. There can be no assurance that the Company will be able to
integrate successfully the assets of Renaissance into the Company's operations
or that Renaissance's
4
<PAGE>
operations will not continue to adversely affect the results of operations of
the Company. In connection with the acquisition of substantially all of the
assets of Renaissance from the secured creditor of Renaissance upon a default by
Renaissance of its loan to such creditor, no liabilities of Renaissance were
contractually assumed by the Company. A number of creditors of Renaissance have
instituted collection actions in court against Renaissance for amounts due to
them from Renaissance. The Company is not a party to any of these actions. To
the extent that any creditors of Renaissance seek recourse against the Company
as the purchaser of substantially all of the assets of Renaissance, the Company
may incur substantial expenses in connection with defending any such actions.
Furthermore, to the extent that creditors are successful in asserting any claims
against the Company as a successor to the business of Renaissance or challenge
the acquisition from the secured creditor, the Company could be responsible for
substantial liabilities and its financial position could be adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Financial Statements.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH, IMPLEMENTATION OF GROWTH
STRATEGY AND POTENTIAL INABILITY TO SUCCESSFULLY INTEGRATE ACQUISITIONS. The
successful implementation of the Company's expansion strategy will be dependent
on, among other things, the continued growth of the designer eyewear and premium
sunglass markets; the Company's ability to develop and introduce new products to
consumers and the marketplace; the Company's ability to identify and obtain
additional licenses for currently popular styles on a timely basis and on
favorable terms; the Company's ability to identify potential acquisition
prospects; the establishment of additional distribution arrangements; the hiring
and retaining of additional marketing, creative and other personnel; and the
successful management of such growth (including monitoring operations,
controlling costs and maintaining effective quality, inventory and service
controls). As the Company continues to grow, there will be additional demands on
the Company's financial, technical and administrative resources. The failure to
maintain and improve such resources or the occurrence of unexpected difficulties
relating to the Company's expansion strategy, could have a material adverse
effect on the Company's business. There can be no assurance that the Company
will be able to implement successfully its business strategy or otherwise expand
its operations. The complete integration and consolidation into the Company of
the product lines acquired upon the acquisition of the assets of Renaissance as
well as any future corporate acquisitions and new product licensing arrangements
will require substantial management, financial and other resources, and could
pose significant pressure on the financial condition and operating results of
the Company. There can be no assurance that the Company's resources will be
sufficient to accomplish such integration, or that the Company will not
experience difficulties with customers, personnel or others. In addition,
although the Company believes that its acquisitions and licensing arrangements
will enhance its competitive position and business prospects, there can be no
assurance that such benefits will be realized or that the combination of the
Company with other companies will be successful. Although the Company regularly
evaluates possible acquisition opportunities, the Company is not a party to any
agreements, commitments, arrangements or understanding with respect to any such
acquisition and there can be no assurance that any such acquisition will be
effected. See "Use of Proceeds" and "Business--Strategy."
DEPENDENCE ON MAJOR CUSTOMERS. The Company's sales to its five largest
customers represented over 62% of its sales in fiscal 1996 and 51% in fiscal
1997 (30% on a pro forma basis during fiscal 1997 giving effect to the
acquisitions of substantially all of the assets of Windsor and Renaissance).
Sales to the Company's top customer, Wal-Mart accounted for approximately 51% of
the Company's sales in 1996 and approximately 35% of its sales in fiscal 1997
(20% on a pro forma basis during fiscal 1997 giving effect to the acquisitions
of substantially all of the assets of Windsor and Renaissance). The Company
anticipates that sales to its top five customers will continue to account for a
significant percentage of its sales. The Company has no long term commitments or
contracts with any of its customers. The loss or decreased sales from one or
more of these customers and in particular, Wal-Mart, would have a material
adverse effect on the Company's financial condition. The inability of any of the
Company's customers to satisfy any of their obligations to the Company at any
time or on a timely basis could have a material adverse effect on the financial
condition of the Company. See "Business--Marketing and Advertising."
5
<PAGE>
DEPENDENCE ON LICENSES AND SIGNIFICANT CONTINUING ROYALTY OBLIGATIONS AND
ACQUISITION COSTS. Sales of eyewear under license agreements represented
approximately 35% and 30% of the pro forma sales of the Company and Renaissance
combined sales for fiscal 1996 and 1997, respectively. The Company's license
agreements generally require the Company to satisfy minimum purchase
requirements or to make annual royalty payments and advertising expenditures and
maintain quality control and retail distribution commensurate with the
licensor's image. Accordingly, certain licensors are entitled to receive payment
from the Company whether or not specified minimum levels of annual sales for
licensed products are met. For the year ending March 31, 1998, the annual
aggregate royalty obligations of the Company under current license agreements
will exceed $944,000 even if the Company were to generate no sales under the
agreements. The license agreements also generally provide that the licensor has
the right to approve products sold pursuant to the license and to terminate the
license if the Company does not satisfy its contractual obligations in any
material respect. Management believes that the value of its licenses depends to
a great extent upon the Company's ability to anticipate, gauge and respond to
changing consumer tastes and the popularity of certain fashion trends and
styles. The agreements licensing to the Company the rights to use certain
trademarks and trade names will terminate between 1997 and 2000. The Company's
successful efforts in developing licensed products and other factors may result
in increased royalty requirements to the Company for renewals. Although the
Company has no reason to believe it will not be able to renew its licenses upon
their respective expiration dates on favorable terms, the loss of one or more of
the licenses, or the decline in popularity of certain trade names, could have a
material adverse effect on the Company's financial condition. The Company's
obligations under employment agreements and consulting agreements with members
of management and its Board of Directors aggregate approximately $500,000 for
the year ending March 31, 1998. In addition, payments under notes,
non-competition and other agreements relating to the acquisition of
substantially all of the assets of Chanuk, Windsor and Renaissance, will
aggregate approximately an additional $375,000 for each of the years ending
March 31, 1998 and March 31, 1999. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Financial Statements.
DEPENDENCE ON OFFERING PROCEEDS TO IMPLEMENT PROPOSED EXPANSION; NEED FOR
ADDITIONAL FINANCING. The Company intends to continue to expand by identifying
and acquiring the businesses or assets of companies with product lines and
distribution channels that are complementary to those of the Company. The
Company is dependent on the proceeds of this Offering or other financing to
implement its proposed expansion. In the event that the Company's plans change,
its assumptions change or prove to be inaccurate or the proceeds of this
Offering and future cash flow proves to be insufficient to fund the Company's
expansion plans (due to unanticipated expenses, delays, problems, difficulties
or otherwise), the Company would be required to seek additional financing sooner
than anticipated or curtail its expansion activities. The Company may determine,
depending upon the opportunities available to it, to seek additional debt or
equity financing to fund the cost of continuing expansion. To the extent the
Company finances an acquisition with a combination of cash and equity
securities, any such issuance of equity securities would result in dilution to
the interests of the Company's stockholders. Additionally, to the extent that
the Company incurs indebtedness or issues debt securities in connection with any
acquisition, the Company will be subject to risks associated with incurring
substantial indebtedness, including the risks that interest rates may fluctuate
and cash flow may be insufficient to pay principal and interest on any such
indebtedness. Other than its bank line of credit, the Company has no current
arrangements with respect to, or sources of, additional financing, and it is not
anticipated that existing stockholders will provide any portion of the Company's
future financing requirements. There can be no assurance that additional
financing will be available to the Company on favorable terms, if at all. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Certain Relationships and Related Party
Transactions."
CONSUMER PREFERENCES AND INDUSTRY TRENDS. The fashion eyewear industry is
characterized by frequent introduction of new products and services, and is
subject to changing consumer preferences and industry trends, which may
adversely affect the Company's ability to plan for future design, development
and
6
<PAGE>
marketing of its products and services. The Company's success will depend on the
Company's ability to anticipate and respond to these and other factors affecting
the industry. Moreover, if a downturn occurs in the economy, the fashion
industry including fashion eyewear, may be particularly vulnerable. There can be
no assurance that the Company will be able to anticipate and respond quickly and
effectively to changing consumer preferences and industry trends or that
competitors will not develop and commercialize new products that render the
Company's products and services obsolete or less marketable. See "Business--
Industry Background" and "--Competition."
DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS. The Company is currently
dependent on a limited number of third-party manufacturers for all of its supply
of eyewear. The Company does not have an agreement with any of such
manufacturers and purchases eyewear pursuant to purchase orders placed from time
to time in the ordinary course of business. The Company is substantially
dependent on the ability of its manufacturers to provide adequate inventories of
quality eyewear on a timely basis and on favorable terms. The Company's
manufacturers also produce eyewear for certain of the Company's competitors, as
well as other large customers, and there can be no assurance that such
manufacturers will have sufficient production capacity to satisfy the Company's
inventory or scheduling requirements during any period of sustained demand, or
that the Company will not be subject to the risk of price fluctuations and
periodic delays. Although the Company believes that its relationship with its
manufacturers is satisfactory and that numerous alternative sources for its
eyewear are currently available, the loss of services of such manufacturers or
substantial price increases imposed by such manufacturers, in the absence of
readily available alternative sources of supply, would have a material adverse
effect on the Company. See "Business--Sources of Supply."
RISKS RELATING TO THE USE OF FOREIGN SUPPLIERS. The Company imports
substantially all of its frames from foreign suppliers and, therefore, its
prices for and supply of those frames may be adversely affected by changing
economic conditions internationally. The Company may also be subject to other
risks associated with its international relationships, including tariff
regulations and requirements for export licenses, unexpected changes in
regulatory requirements, potentially adverse tax consequences, economic and
political instability, restrictions on repatriation of earnings and the burdens
of complying with a wide variety of foreign laws. In addition, the laws of
certain countries may not protect the Company's products and intellectual
property rights to the same extent as do the laws of the United States. There
can be no assurance that such factors will not have a material adverse effect on
the Company's future sales or licenses and, consequently, on the Company's
business and operations as a whole.
USE OF PROCEEDS TO REPAY DEBT; BROAD DISCRETION IN APPLICATION OF PROCEEDS;
BENEFITS TO INSIDERS. Approximately $6,100,000 (61.4%) will be used for the
repayment of bank indebtedness by reducing the Company's debt under its line of
credit and $2,060,000 (21%) of the estimated net proceeds of this offering have
been allocated to working capital and general corporate purposes. Accordingly,
the Company will have broad discretion as to the application of the proceeds of
the offering and capital available under its line of credit. Approximately
$280,000 (3%) of the proceeds will be used to repay indebtedness to Rudy
Slucker, the Company's Chairman of the Board of Directors, incurred by the
Company in February 1997 to assist the Company in financing its costs relating
to the acquisition of substantially all of the assets of Renaissance. In
addition, since Rudy Slucker, the Chairman of the Board of the Company, and
Barry Budilov, the President and Chief Executive Officer of the Company, have
each guaranteed up to $750,000 of such debt, the likelihood of a default and a
call on their guarantee is reduced to the extent of the reduction in the amount
of the debt. In addition, Messers. Slucker and Budilov have agreed to increase
their personal guarantees by $375,000 each if the Company fails to complete a
public offering by February 1998. Accordingly, upon the completion of this
Offering, the personal obligations of Messrs. Slucker and Budilov will be
reduced further. Finally, the Company's obligations under employment agreements
and consulting agreements with members of management and its Board of Directors,
including Messrs. Slucker and Budilov, aggregate approximately $630,000 (6.3%)
over the next 18 months. See "Use of Proceeds."
7
<PAGE>
HIGHLY COMPETITIVE MARKET. The prescription and non-prescription eyewear
markets are highly competitive. The major competitive factors in the eyewear
market include, but are not limited to, fashion trends, brand recognition,
method of distribution, the number and range of products offered, an increase in
contact lens users and the increase acceptance of laser surgery as a viable
method to correct or assist poor vision. The Company competes with a number of
established companies, including Luxotica, Safilo, Marchon, and Bausch & Lomb,
which collectively control a substantial portion of the premium market segment,
other large companies and with several companies having smaller but significant
market shares. Several of these companies have substantially greater resources
and better name recognition than the Company and sell their products through
broader and more diverse distribution channels. In addition, several of these
competitors have their own manufacturing facilities. The Company could also face
competition from new competitors, including established branded consumer
products companies, such as Nike, Inc., that also have greater financial and
other resources than the Company. In addition, as the Company expands
internationally, it will face substantial competition from companies that have
already established their products in international markets and consequently
have significantly more experience in those markets than the Company. In
addition, to retain and increase its market share, the Company must continue to
be competitive in the areas of quality and performance, technology, obtaining
attractive licenses, customer service and price of which there can be no
assurance. See "Business--Competition."
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS, TRADEMARKS AND TRADE NAMES.
Although a substantial portion of the Company's product lines are designed to be
"traditional" designs, that are not necessarily subject to changing fashion
trends, the eyewear industry is nevertheless subject to continuing broader as
well as often subtle shifts in consumer taste and preferences. The Company
offers in excess of 700 eyewear styles at any one time and may introduce 100 new
styles in any given year. The sustainability of the Company's growth will
depend, in part, on its continued ability to develop, identify and introduce
innovative designs and products and on the acceptance of such designs and
products by consumers. Innovative designs are often not successful, and
successful product designs can be displaced by other product designs introduced
by competitors that shift market preferences in their favor. Sunglasses are
particularly subject to shifting consumer tastes and may have relatively short
life cycles, thereby requiring the Company to introduce new products more
frequently. In addition, competitors may follow the Company's introduction of
successful products with similar product offerings, thereby decreasing the
Company's market share. If the Company misjudges the market for a particular
product, particularly its sunwear line of products, the Company's sales may be
adversely affected and it may be faced with excess inventories. As a result of
these and other factors, there can be no assurance that the Company will
successfully maintain or increase its market share. In addition, the Company
owns and has obtained licenses to various domestic and international trademarks
related to its products and business. These licenses expire at various times
over the next four years. The loss of one or more of the trademarks could have a
material adverse effect on the Company's financial condition. Further, if the
Company had to defend against any litigation proceedings, suits or claims
relating to its intellectual property rights or to its intellectual property or
institute any action to protect such rights, the Company's involvement in such
action could have a material adverse effect on the Company's financial
condition.
SEASONALITY. The Company believes that its business is subject to seasonal
trends, resulting in higher sales of prescription eyewear during the spring and
fall and higher sales of sunglass products during the spring. Accordingly, sales
and results of operations for the months may fluctuate from month to month
throughout the year and quarterly results may not always be indicative of the
entire year.
CONTROL OF THE COMPANY BY OFFICERS AND DIRECTORS. Immediately following
this Offering, Rudy Slucker and Barry Budilov will beneficially own
approximately 65% of the outstanding shares of the Company's Common Stock. As a
result, such persons, acting together, have the ability to exercise control over
all matters requiring stockholder approval. In addition, the Company's credit
facility includes a provision that requires the continuing involvement by
current management as a condition to the continuing availability of
8
<PAGE>
the credit. The concentration of ownership could delay or prevent a change in
control of the Company. See "Management" and "Principal Stockholders."
DILUTION. Purchasers of the Shares offered hereby will suffer an immediate
and substantial dilution of $3.93 per Share from the initial public offering
price (assuming an initial public offering price of $6.00 per Share). In
addition, investors purchasing Shares in the Offering will incur additional
dilution to the extent that stock options are exercised. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have 5,500,000 shares of Common Stock outstanding, as well as
options and warrants to purchase an additional 699,333 shares of Common Stock
(including the Underwriter's Warrants). The 2,000,000 Shares sold in the
Offering will be freely tradable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"). The
3,500,000 shares of Common Stock owned by existing stockholders are deemed to be
"restricted securities," as that term is defined in Rule 144 promulgated under
the Securities Act, in that such shares were issued in a private transaction not
involving a public offering. All of the 3,500,000 shares of Common Stock held by
existing stockholders will be eligible for sale under Rule 144 ninety days after
the Offering. The Company and each of the Company's directors, officers and
shareholders have agreed not to offer, assign, issue, sell, hypothecate or
otherwise dispose of any shares of Common Stock or any securities exercisable
for or convertible into shares of Common Stock for a period of 18 months after
the date of this Prospectus without the prior, written consent of the
Underwriter. No prediction can be made as to the effect, if any, that sales of
securities or the availability of securities for sale will have on the market
price of the Shares prevailing from time to time. The holders of the
Underwriter's Warrants will have certain demand and "piggy back" registration
rights with respect to such warrants and the shares of Common Stock underlying
such warrants commencing one year after the date hereof. If the Underwriter
should exercise its registration rights to effect a distribution of the
Underwriter's Warrants or the Warrant Shares, the Underwriter, prior to and
during such distribution, will be unable to make a market in the Company's
securities, which may therefore be limited. If the Underwriter ceases making a
market in the Common Stock, the Company could lose the ability to list the
Common Stock on the Nasdaq National Market because of such market's requirement
of at least two market makers, the market and market prices for the Common Stock
may be materially adversely affected, and holders thereof may be unable to sell
or otherwise dispose of shares of Common Stock. See "Shares Eligible For Future
Sale" and "Underwriting."
NO PRIOR MARKET; DETERMINATION OF OFFERING PRICE. Prior to the Offering,
there has been no public market for the Company's Common Stock. Although the
Company is seeking listing of the Common Stock on the Nasdaq National Market,
there can be no assurance that such application will be approved or that an
active public market will develop. The initial public offering price will be
determined by negotiation between the Company and the Underwriter. There can be
no assurance that the initial public offering price will correspond to the price
at which the Common Stock will trade in the public after the Offering or that an
active trading market for the Common Stock will develop and continue after the
Offering. See "Underwriting."
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Common Stock
may be highly volatile. Factors such as fluctuations in the Company's operating
results, announcements of new products by the Company or its competitors,
developments with respect to trademarks or proprietary rights, changes in stock
market analyst recommendations regarding the Company, other companies selling
similar products and general market conditions may have a significant effect on
the market price of the Common Stock. In addition, the stock market has
periodically experienced significant price and volume fluctuations unrelated to
operating performance of particular companies. These broad market fluctuations
may adversely affect the market price of the Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Underwriting."
9
<PAGE>
ABSENCE OF DIVIDENDS. The Company's current policy is to retain earnings
for use in its business and, accordingly, the Company does not intend to pay
cash dividends on its Shares in the foreseeable future. Furthermore, the
Company's credit facility with CoreStates Bank restricts the payment of cash
dividends while amounts are outstanding under the facility. See "Dividend
Policy."
ELIMINATION OF LIABILITY FOR DIRECTORS. The Company's Articles of
Incorporation limit the liability of a director of the Company to the Company
and its stockholders for monetary damages for breach of fiduciary duty to the
fullest extent permitted by the Delaware General Corporate Law ("DGCL"). The
DGCL permits elimination of a director's personal liability for monetary damages
for breach of fiduciary duty, except (i) for breach of the director's duty of
loyalty to a company or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(iii) for acts specified in Section 174, DGCL and (iv) for transactions in which
the director directly or indirectly derived an improper personal benefit. As a
result of such provisions, the rights of Company stockholders to recover
monetary damages from directors of the Company for certain breaches of
directors' fiduciary duties may be significantly limited. See
"Management--Indemnification of Directors and Executive Officers and Limitation
of Liability."
BLANK CHECK PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS; ISSUANCE OF
SERIES A PREFERRED STOCK. The Company's Articles of Incorporation authorizes
the Board of Directors to issue up to 1,000,000 shares of Preferred Stock, $.01
par value per share. The Preferred Stock may be issued in one or more series,
the terms of which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may include, among other
things, voting rights (including the right to vote as a series on particular
matters), preferences as to dividends and liquidation, conversion and redemption
rights, and sinking fund provisions. The issuance of any such preferred stock
could materially adversely affect the rights of holders of Common Stock and,
therefore, could reduce the value of the Common Stock. In addition, specific
rights granted to future holders of preferred stock could be used to restrict
the Company's ability to merge with, or sell its assets to a third party,
thereby preserving control of the Company's existing stockholders. The issuance
of the preferred stock may, in some circumstances, deter or discourage takeover
attempts and other changes in control of the Company, including takeovers and
changes in control which some holders of the Common Stock may deem to be in
their best interests and in the best interest of the Company, by making it more
difficult for a person who has gained a substantial equity interest in the
Company to obtain voting control or to exercise control effectively thereby
preserving control of the Company by the current controlling stockholders. On
the effective date of this Offering, certain debt payable to the Company's two
principal stockholders of the Company will be converted into an aggregate of
118,100 shares of Series A Preferred Stock. See "Description of Securities."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered by the
Company hereby are estimated to be $9,940,000 (or $10,723,000 if the
Underwriter's over-allotment option is exercised in full), based on an assumed
initial public offering price of $6.00 per share and after deducting the
estimated underwriting discounts and offering expenses payable by the Company.
The Company intends to use the net proceeds from the Offering over the next 18
months for (i) reduction of approximately $6,100,000 (61% of net proceeds) of
the Company's bank debt and repayment of approximately $280,000 (3% of net
proceeds) of indebtedness to Rudy A Slucker, the Chairman of the Board of
Directors of the Company; (ii) expansion of sales and marketing activities
(approximately $800,000, 8% of net proceeds); (iii) purchase of inventory
(approximately $500,000, 5% of net proceeds); (iv) expenses relating to the
relocation of the Company's facilities (approximately $200,000, 2% of net
proceeds); (v) general corporate purposes, including working capital and to
finance potential acquisitions ($2,060,000, 21% of net proceeds). A portion of
the Company's working capital will be used to satisfy the Company's obligations
under employment agreements and consulting agreements with members of management
and its Board of Directors which aggregate approximately $630,000 (6.3% of net
proceeds) over the next 18 months. Any proceeds from the exercise of the
Underwriter's over-allotment option will be added to working capital and to
finance potential acquisitions.
10
<PAGE>
The debt that is being repaid from the proceeds of this Offering is
comprised of (i) $6,100,000 of principal, interest and fees to CoreStates Bank
and (ii) $280,000 to Rudy A. Slucker, the Chairman of the Board of Directors of
the Company. The CoreStates Bank debt is pursuant to a demand note that bears
interest at an annual rate equal to the pursuant rate (8.5% at June 30, 1997).
The debt to Mr. Slucker was incurred on February 4, 1997 to assist the Company
in financing its costs relating to the acquisition of substantially all of the
assets of Renaissance. The loan is repayable upon demand and bears interest at
the rate of 8% per annum. The cash used by the Company from its loan facilities
has been used by the Company to fund working capital, including, among other
things, to pay salaries of management to pay for costs associated with moving
the Company's facilities, and to pay interest to the Company's principal
stockholders on outstanding debt. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain Relationships and
Related Party Transactions."
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this Offering based upon the Company's currently
contemplated operations, business plans, as well as current economic and
industry conditions, and is subject to reapportionment among the categories
listed above or to new categories in response to, among other things, changes in
the Company's plans, unanticipated future revenues and expenditures, and
unanticipated industry conditions. The amount and timing of expenditures will
vary depending on a number of factors, including, without limitation, the
results of operations and changing industry conditions. To the extent deemed
appropriate by management, the Company may acquire fully developed products or
businesses that are complementary to the Company's operations and which, in the
opinion of management, facilitate the growth of the Company and enhance the
market penetration or reputation of its products. To the extent that the Company
identifies any such opportunities, an acquisition may involve the expenditure of
significant cash or the issuance of Common Stock. Any expenditure of cash will
reduce the amount of cash available for working capital or marketing and
advertising activities. Although the Company has been engaged in discussions
with a number of potential candidates, the Company currently has no commitments,
understandings or arrangements with respect to any such acquisition. The
Company's current corporate policy would not prohibit any such transactions
between the Company and any business or company in which management or any
affiliate or associate of any member of management have an ownership interest,
but would require that the terms of any such transaction be on terms no less
favorable to the Company as those that could be obtained from an independent
third party.
Pending application of the net proceeds, the Company intends to invest the
net proceeds in short-term investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and presently does not intend to do so in the foreseeable future.
Management intends to retain all available earnings to finance and expand its
business. Declaration of dividends in the future will be at the discretion of
the Board of Directors and will depend on the Company's future earnings, capital
requirements, financial position, contractual restrictions, and other factors
deemed relevant by the Company's Board of Directors.
11
<PAGE>
CAPITALIZATION
The following table sets forth the actual short-term debt and capitalization
of the Company at March 31, 1997, after giving effect to a 1,166 2/3-for-one
stock split and as adjusted to give effect to the sale of the Shares offered
hereby at an assumed initial public offering price of $6.00 per Share, and the
repayment of $6,380,000 of debt (including up to $500,000 of debt incurred after
March 31, 1997) with the proceeds therefrom. Gives effect to the conversion of
$1.18 million of debt into 118,100 shares of Series A Preferred Stock as of the
effective date of this Offering. See "Use of Proceeds" and "Capitalization."
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------
<S> <C> <C>
PRO FORMA AS
ACTUAL ADJUSTED
---------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current maturities.......................................... $ 12,474 $ 6,594
Long-term debt......................................................................... $ 409 $ 409
Series A Cumulative Redeemable Preferred Stock; 0 shares authorized, 118,100 shares 0
authorized, issued and outstanding, pro forma........................................ 1,181
Stockholders' equity:
Preferred Stock, $.01 per value; 150,000 shares authorized, 1,000,000 shares --
authorized, pro forma(1)........................................................... --
Common stock, $.01 par value; 10,000,000 shares authorized; 3,500,000 shares 35
outstanding 5,500,000 shares issued and outstanding as adjusted (2)................ 55
Additional paid-in capital........................................................... $ 187 $ 10,107
Unearned portion of compensatory stock options....................................... $ (184) $ (184)
Retained earnings.................................................................... $ 269 $ 269
---------- -------------
Total stockholders' equity......................................................... $ 307 $ 10,247
---------- -------------
Total capitalization............................................................. $ 716 $ 11,837
---------- -------------
---------- -------------
</TABLE>
- ------------------------
(1) 118,100 shares of Preferred Stock have been designated as Series A
Cumulative Redeemable Preferred Stock.
(2) Excludes (i) 499,333 shares of Common Stock issuable upon exercise of
outstanding options, and (ii) 200,000 shares of Common Stock issuable upon
exercise of the Underwriter's Warrants. See "Certain Relationships and
Related Party Transactions" and "Underwriting."
12
<PAGE>
DILUTION
At March 31, 1997, the pro forma net tangible book value of the Company was
approximately $1,430,000, or $.41 per Share. "Pro forma net tangible book value
per share" represents the amount of total tangible assets of the Company less
total liabilities of the Company adjusted on a pro forma basis to give effect to
the conversion of $1,181,000 of indebtedness into 118,100 shares of Series A
Preferred Stock, divided by the number of shares of Common Stock then
outstanding. "Dilution per share" represents the difference between the price to
be paid by new investors and the net tangible book value per Share after the
Offering. After giving effect to the sale by the Company of the Shares offered
hereby at an assumed initial public offering price of $6.00 per share and the
application of the estimated net proceeds in the manner set forth in "Use of
Proceeds," the pro forma as adjusted net tangible book value of the Company at
March 31, 1997 would have been approximately $11,370,000, or $2.07 per Share.
This represents an immediate increase in net tangible book value of $1.66 per
share to existing stockholders and an immediate dilution of $3.93 per share of
Common Stock to new stockholders purchasing Shares offered hereby at an assumed
initial offering price of $6.00 per Share, as illustrated in the following
table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price......................... $ 6.00
Pro forma net tangible book value per share at March 31,
1997...................................................... $ .41
Increase per share attributable to sale of Shares in the
Offering.................................................. $ 1.66
---------
Pro forma as adjusted net tangible book value per share after
the Offering................................................ $ 2.07
---------
Dilution to new investors this Offering....................... $ 3.93
---------
---------
</TABLE>
The following table summarizes on a pro forma basis as of March 31, 1997 the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by the
existing stockholders and by new investors purchasing Shares in the Offering at
an assumed initial offering price of $6.00 per Share (before deducting the
estimated underwriting discount and offering expenses payable by the Company).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.................................. 3,500,000 63.64% $ 1,000 .01% $ .0003
New Investors.......................................... 2,000,000 36.36% 12,000,000 99.99% $ 6.00
---------- --------- ------------- ---------
Total.................................................. 5,500,000 100.00% $ 12,001,000 100.00%
---------- --------- ------------- ---------
---------- --------- ------------- ---------
</TABLE>
The foregoing computations assume no exercise of the Underwriter's
over-allotment option or any outstanding stock options. See "Capitalization" and
"Underwriting."
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW. The Company designs, markets, sources and distributes high
quality prescription eyeglass frames and non-prescription sunglasses to
department and specialty stores, optical chains and eyewear boutiques throughout
the United States and the world. On May 3, 1995 (inception), the Company was
organized and on May 10, 1995, acquired substantially all of the assets and
assumed certain of the liabilities of Chanuk. Chanuk was engaged in
substantially the same business as the Company and a majority stockholder of
Chanuk is the mother-in-law of the President of the Company. The Company has
expanded through the acquisition of other companies in related and complementary
businesses and through the increase of its sales base. On June 26, 1996 the
Company acquired substantially all of the assets and assumed certain of the
liabilities of Windsor and on February 26, 1997, the Company acquired from a
bank substantially all of the assets of Renaissance. The bank had foreclosed on
Renaissance upon default of its loan agreement. In connection with the
acquisition, the Company paid the bank $3,446,000. The Company also entered into
a consulting agreement with the former owner of Renaissance which provided for
annual aggregate payments of $200,000 per year for five years. In addition,
under a consulting agreement, the Company granted the former owner of
Renaissance options to purchase 180,833 shares of Common Stock of the Company
for $3.00 per share. Following the acquisition, the Company paid an aggregate of
approximately $400,000 to various creditors of Renaissance deemed to be
necessary to preserve the value of the acquired assets.
The results of operations for the Company for the period from inception to
March 31, 1996 ("Fiscal 1996") gives effect to the operations of the Company
independent of Windsor and Renaissance. The operations of the Company for the
year ended March 31, 1997 include the results of operations of the Company
during such period, including nine months of operations attributable to the
operations of Windsor as well as approximately one month of operations of
Renaissance. The pro forma condensed statement of operations for the year ended
March 31, 1997 gives effect to the operations for each of the Company,
Renaissance and Windsor as if the acquisitions of substantially all of the
assets Renaissance and Windsor had occurred on April 1, 1996. However, the
operations of Renaissance give effect to its conduct as a stand-alone business
and do not reflect the anticipated efficiencies of scale or other cost reduction
measures being implemented by the Company. However, no assurance can be given
that any such efficiencies will be achieved. The discussion of the liquidity and
capital resources of the Company at March 31, 1997, includes information with
respect to the Company that gives effect to both the acquisition of Renaissance
and Windsor since the respective acquisitions occurred prior to such date.
YEAR ENDED MARCH 31, 1997 ("FISCAL 1997") COMPARED TO FISCAL 1996. Net
sales for Fiscal 1997 were approximately $16.5 million as compared to
approximately $11 million for Fiscal 1996. The increase in sales was
attributable first to the addition of the product lines and sales resulting from
the acquisition of Windsor in June 1996 as well as to increases in sales of
existing product lines of the Company. In addition, Fiscal 1996 reflects
approximately one less month of operations than Fiscal 1997.
Cost of sales for Fiscal 1997 were approximately $8.5 million (approximately
52% of net sales) as compared to approximately $6.4 million for Fiscal 1996
(approximately 58% of net sales) for Fiscal 1996. Cost of sales includes the
purchase price for eyeglass frames in addition to the costs of the Company of
importing as well as royalty payments related to license agreements. Cost of
sales decreased from 1997 to 1996 as a percentage of net sales because the
Company was able to identify lower cost sources of manufacturing as its sales
volume increased and established efficiencies of scale in connection with the
distribution and maintenance of its inventories.
Selling, general and administrative expenses, consisting of advertising,
marketing, accounting and salaries of officers, increased from approximately
$4.3 million (approximately 39% of net sales) for Fiscal 1996 to approximately
$6.1 million (approximately 37% of net sales) for Fiscal 1997. Selling, general
and administrative expenses increased in aggregate dollar amounts reflecting
increased sales and marketing
14
<PAGE>
costs and increased administrative costs relating to the acquisition of
substantially all of the assets of Windsor and Renaissance the increase in
accounting and overhead expense relating to the introduction of new product
lines. The Company expects that with the addition of Renaissance, its selling,
general and administrative expenses will decline as a percentage of net sales as
it achieves increased efficiencies of scale.
Income from operations increased from approximately $351,000 (approximately
3.2% of net sales) for Fiscal 1996 to approximately $1.8 million (approximately
11.1% of net sales) during Fiscal 1997, reflecting the increased sales by the
Company from its pre-existing base of customers as well as the addition of the
Windsor operations and a decrease in cost of sales.
Interest expense increased from approximately $474,000 for Fiscal 1996 to
approximately $742,000 during Fiscal 1997, reflecting the increased borrowing by
the Company both to finance the acquisition of Windsor, to finance the growth of
the Company's operations and to finance the increase in the Company's inventory
necessary to allow the Company to provide improved delivery capabilities for its
increase in customer base. As of June 30, 1997, the Company's debt consists
primarily of $12 million outstanding under its $12 million credit facility with
CoreStates Bank, in addition to a $500,000 overadvance and approximately
$280,000 additional indebtedness to another bank.
LIQUIDITY AND CAPITAL RESOURCES. At March 31, 1997, the Company had working
capital of approximately $1,900,000. The Company's total current assets at March
31, 1997 of approximately $20 million includes accounts receivable of
approximately $7.4 million and inventories of approximately $12 million. The
Company's accounts receivable reflects an allowance for doubtful accounts of
approximately $2.4 million. Approximately 35% of the Company's net accounts
receivable (for which a reserve has not been taken) are more than 60 days old at
March 31, 1997. The Company's inventories consist principally of eyeglass frames
and sunglasses held at its warehouse for distribution. The market for eyewear
and accessories is subject to the risk of changing consumer trends. In order to
be able to promptly fill orders from distributors, the Company maintains a
significant level of inventory. In the event that a significant number of
particular models or accessories does not achieve widespread consumer
acceptance, the Company may be required to take significant price markdowns,
which could have a material adverse effect on the business results of operations
and financial condition of the Company.
The Company's current liabilities include approximately $12 million relating
to its revolving line of credit with CoreStates Bank. The Company has used its
line of credit to fund its continuing operations, to fund its increased
inventory and to fund the acquisitions of Windsor and Renaissance. The revolving
line of credit expires annually on June 1st and is automatically renewed for one
year periods providing for a maximum borrowing amount of $12 million.
Indebtedness under the line accrues interest at the prime rate (8.5% at June 30,
1997) and is collateralized by substantially all of the assets of the Company.
Rudy Slucker, the Chairman of the Board of Directors of the Company, and Barry
Budilov, the President of the Company, have each provided personal guarantees
for the line of credit for up to $750,000 of such debt. In addition, Messrs.
Slucker and Budilov have agreed to increase their present guarantees by $375,000
each if the Company fails to complete a public offering by February 1998.
Accordingly, upon the completion of this Offering, the personal obligations of
Messrs. Slucker and Budilov will be reduced further. At March 31, 1997,
approximately $12 million was outstanding under the credit facility. As of June
30, 1997, the Company entered into an overadvance line of credit with CoreStates
Bank providing for an additional $500,000 of credit, due upon the earlier of the
closing of this Offering or September 30, 1997. The Company intends to repay
approximately $6 million of this debt from the proceeds of this Offering. In
addition, CoreStates Bank is entitled to a transaction fee of $100,000 which
relates to the acquisition of Renaissance, and is payable upon the closing of
this Offering. The Company has also borrowed $280,000 from Rudy A. Slucker on
February 4, 1997 to assist the Company in financing its costs relating to the
acquisition of substantially all of the assets of Renaissance. The loan is
payable on demand with interest at the rate of 8% per annum. The Company will
repay the debt upon the closing of the Offering.
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The Company's current liabilities also include approximately $4.2 million of
accounts payable and $810,000 accrued expenses, payable in the ordinary course
of its business. The Company's long-term debt includes approximately $300,000 of
indebtedness in connection with the acquisition of Windsor, approximately
$836,000 of net deferred credit, representing the excess value of net assets of
Windsor and Renaissance acquired over cost. This amount is being amortized over
a period of five years from the dates of respective acquisition.
As of the effective date of this Offering, an aggregate of approximately
$1.18 million in principal and interest, payable to Mr. Slucker and Mr. Budilov
will be converted from promissory notes to 118,100 shares of Series A Cumulative
Redeemable Preferred Stock ("Series A Preferred Stock"). The Series A Preferred
Stock yields dividends at the rate of 3% per annum and will be redeemable at the
option of the holder three years from the effective date of this Offering. If
the Company has earnings equal to or in excess of $.60 per share for the year
ending March 31, 1999 or $.75 per share for the year ending March 31, 2000, the
Series A Preferred Stock may be redeemed at the option of the holder commencing
on March 31, 1999 or March 31, 2000, respectively. The Series A Preferred Stock
will be non-voting. The Company's revolving line of credit with CoreStates Bank
contains restrictions on the redemption of securities of the Company to the
extent that amounts remain outstanding under the line of credit. In addition,
the revolving line of credit restricts the payment of dividends to stockholders
and provides for a variety of conditions of default, including the continuing
participation of Rudy A. Slucker and Barry Budilov in their current management
positions.
Sales of eyewear under license agreements represented approximately 35% and
30% of the pro forma sales of the Company and Renaissance for fiscal 1996 and
1997, respectively. The Company's license agreements generally require the
Company to satisfy minimum purchase requirements or to make annual royalty
payments and advertising expenditures and maintain quality control and retail
distribution commensurate with the licensor's image. Accordingly, certain
licensors are entitled to receive payment from the Company whether or not
specified minimum levels of annual sales for licensed products are met. For the
year ending March 31, 1998, the annual aggregate commission obligations of the
Company under current license agreements will exceed $944,000 even if the
Company were to generate no sales under the agreements.
The Company's obligations under employment agreements and consulting
agreements with members of management and its Board of Directors aggregate
approximately $630,000 over the next 18 months. In addition, payments under
notes, non-competition and other agreements relating to the acquisition of
substantially all of the assets of Chanuk, Windsor and Renaissance, will
aggregate approximately an additional $375,000 for the years ending March 31,
1998 and March 31, 1999.
The Company currently leases office, warehouse and showroom facilities and
equipment under operating leases, which expire at various times through the year
2002. Future minimum lease payments under non-cancelable leases at March 31,
1997 aggregate approximately $591,000 through the year 2002.
The Company has leased its principal offices in Philadelphia, Pennsylvania
under a lease that expires in the year 2000. Monthly rental payments under such
lease are approximately $11,000. The Company intends to move to an alternative
location in Pennsylvania within three months for its management inventory and
distribution operations for which it expects to have a base annual rent of
approximately $237,000 per year. The Company does not intend to use its
Philadelphia facility and will be required to sublet the facility or be
responsible for rent through 2000 which rent obligation is approximately $11,000
per month. If the Company sublets the facility for less than the full rental
amount, if at all, the Company will be required to recognize a charge to the
extent of any shortfall.
In connection with the acquisitions of substantially all of the assets of
Renaissance in 1997, the Company satisfied certain obligations of that business
to particular creditors, the cooperation of which was deemed to be necessary to
continue conducting business. In connection with the acquisition of
substantially all of the assets of Renaissance, no liabilities of Renaissance
were contractually assumed by the Company.
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A number of creditors of Renaissance have instituted collection actions in court
against Renaissance for amounts due to them from Rennaissance. The Company is
not a party to any of these actions. To the extent that any creditors of
Renaissance seek recourse against the Company as the purchaser of substantially
all of the assets of Renaissance, the Company may incur substantial expenses in
connection with defending any such actions. Furthermore, to the extent that
creditors are successful in asserting any claims against the Company as a
successor to Renaissance or challenge the acquisition from the secured creditor,
the Company could be responsible for substantial liabilities and its financial
position could be adversely affected.
PRO FORMA RESULTS OF OPERATIONS FOR THE COMPANY AND RENAISSANCE. The pro
forma unaudited condensed statement of operations for the Company reflects the
acquisitions of Windsor and Renaissance as if such transactions had occurred on
April 1, 1996. Pro forma net sales were approximately $29.1 million for Fiscal
1997, reflecting net sales for the Company of approximately $16.4 million, net
sales for Renaissance for the eleven months ended February 28, 1997 of
approximately $11.7 million and net sales for Windsor for the three months ended
June 30, 1996 (being the period during which Windsor's sales were not included
in those of the Company) of approximately $1 million. Cost of sales for
Renaissance for the eleven months ended February 28, 1997 were approximately
$6.1 million (approximately 52% of net sales), resulting in a gross profit of
approximately $5.6 million (approximately 48% of net sales). However, selling,
general and administrative expenses for Renaissance were approximately $6.5
million for the eleven months (approximately 56% of net sales), resulting in a
loss from operations for Renaissance of approximately $900,000. On a pro forma
basis, $332,000 of expenses for the Company are eliminated to reflect the
acquisition of Windsor and Renaissance as if they had taken place on April 1,
1996. Income from operations on a pro forma basis are approximately $1,380,000,
resulting in a pro forma income before taxes of approximately $275,000.
SEASONALITY. The Company believes that its business is subject to seasonal
trends, resulting in higher sales of prescription eyewear during the spring and
fall and higher sales of sunglass products during the spring. Accordingly, sales
and results of operations may fluctuate from month to month throughout the year
and quarterly results may not always be indicative of the entire year.
INFLATION. Management believes that there has been no significant impact on
the Company's operations as a result of inflation.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS. Certain
statements contained in the "Prospectus Summary," "Risk Factors," Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," including statements regarding the anticipated development and
expansion of the Company's business, the markets in which the Company's products
are offered, and anticipated capital expenditures, the intent, belief or current
expectations of the Company, its directors or its officers, primarily with
respect to the future operating performance of the Company and other statements
contained herein regarding matters that are not historical facts, are
"forward-looking" statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995). Because such statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements include, but are not limited to, the factors set
forth in "Risk Factors" and "Business."
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BUSINESS
OVERVIEW
The Company designs, sources, markets and distributes high quality
prescription eyeglass frames and non-prescription sunglasses to department and
specialty stores, optical chains and eyewear boutiques throughout the United
States and the world. The Company also provides integrated marketing,
merchandising materials and consulting support to its distributors and sales
force in the sale of the Company's eyewear products. The Company distributes its
eyewear products to a broad and substantial customer base including Wal-Mart,
K-Mart, National Vision Associates and U.S. Vision as well as many regional
chain stores and local outlets. The Company has established relationships with
various fashion designers, fashion celebrities and marketing organizations
including Kathy Ireland, Halston and the John Lennon Estate, and highly
recognizable consumer products brands such as Playskool, Nintendo and
international jewelry designer Kenneth Jay Lane. The Company intends to continue
to identify and license trade names and trademarks from various high profile
brand sources in an effort to target and capture additional segments of the
eyewear markets.
The Company utilizes a diverse team of freelance experienced fashion eyewear
designers to work with fashion houses, celebrities, manufacturers and
experienced members of the optical industry to design eyewear styles that convey
fashion, elegance and sophistication. The Company's eyeglass frames and
sunglasses are manufactured at a variety of independent factories throughout the
world. The Company distributes products through independent sales
representatives situated throughout the world and intends to increase the size
of its dedicated sales force, expand its sales and marketing capabilities and
develop additional alliances with fashion designers and licensors.
INDUSTRY BACKGROUND
In 1996 approximately 60% of the nation's population, used some form of
corrective eyewear. Retails sales of eyewear products totaled $14.6 billion in
1996. According to a recent study, this represents a 6% increase over $13.8
billion that was spent in 1995, when actual sales increased by 7% over 1994. The
market for corrective eyewear has grown steadily over the past five years and
the demographic trends of an aging population are expected to generate increased
demand for corrective eyewear and optical services in the immediate future.
Industry sources attribute growing retail sales of eyewear to the industry's
success in generating consumer interest in fashion eyewear. It has been reported
that American consumers are showing a distinct preference for high fashion and
high performance in eyewear frame styles. Frames accounted for $5.5 billion in
retail sales in 1996, up 7% over $5.1 billion in 1995. The average retail price
for frames also increased by about two dollars to nearly $59 in 1996. This
accounted for about 39% of an average sale of $150 for a complete set of
eyewear. It is reported that designers and brand names are leading the growth in
sales of eyewear. It has been estimated that 41% of all frame sales in 1996 were
designer/branded/licensed products, an increase of 1% from 1995. In addition,
premium materials are also being embraced by consumers, including light weight
stainless steel and titanium eyeglass frames. Metal frames are estimated to
account for 61% of all frames sold in 1996. It is estimated that in 1986,
plastic frames accounted for over two-thirds of all frames sold.
The Company believes that since the mid-1980s the sunglass market has
experienced significant growth driven primarily by the expansion of the
premium-priced sunglass market segment. According to a 1996 sunwear survey in
the United States, retail sales of sun related eyewear grew to $2.95 billion in
1996, up 8% over 1995. The premium priced sunglass segment accounts for
approximately 53% of such sales.
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STRATEGY
The Company's business strategy for growth focuses on maintaining and
expanding its competitive position in the markets it currently serves and
establishing competitive market positions in other geographic areas, primarily
within the United States and to a lesser extent globally. The principal elements
of the Company's strategy include:
- TARGET MID RANGE PRICE CONSUMERS. The Company has specifically targeted
and developed the market segment for high-quality designer eyewear sold at
retail price points below those of "designer" eyewear of comparable
quality. The Company identified in the early 1990's the potential that
mass market discount stores such as Wal-Mart and K-Mart had for marketing
eyewear and established its important supply relationships when such
retailers were only first entering the eyewear market. The Company
distributes eyewear and related products that are comparable in fashion
and quality to any product in the market and yet generally lower in cost.
- TARGET ADDITIONAL DISTRIBUTORS, COORDINATE AND MANAGE DISTRIBUTION. The
Company is pursuing additional relationships with distributors throughout
the world and globally. The Company believes that by continually
establishing such relationships, it will be able to increase its share of
the eyewear market in the United States as well as abroad. Currently, the
Company distributes its products through a coordinated network of Company
employed and independent sales representatives. The Company maintains
strict control over its sales network employing a substantial percentage
of its sales representatives on a full-time basis, and by monitoring
pricing policy and participating in advertising and promotional
activities.
- PURSUE ACQUISITIONS TO INCREASE PENETRATION IN EXISTING AND NEW
MARKETS. The Company seeks to increase its penetration in new and existing
markets by acquiring businesses and product lines that are complementary
to that of the Company. The Company expects to pursue selective
acquisitions of customer bases or businesses, companies that complement
the Company's current operations or expand its services or network
capabilities. The Company believes that such acquisitions, investments and
strategic alliances are an important means of increasing sales volume.
Through the acquisition of substantially all of the assets of Windsor in
1996, the Company acquired 8 new lines of eyewear including licenses for
Kenneth Jay Lane and John Lennon. Through the acquisition of substantially
all of the assets of Renaissance, the Company significantly enhanced its
sunglass product lines as well as its channels of distributions for
sunglass products. In addition, following the acquisition, the Company
negotiated licenses to use additional trade names, including Oscar de la
Renta and Nintendo. Renaissance had sales of approximately $14 million for
the year ended October 31, 1996 and distributed 5 different lines of
eyeglass frames and sunglasses. The Company intends to continue to expand
its sales of sunglasses by increasing its sales and efforts and
identifying and acquiring additional sunwear product lines.
PRODUCTS
The Company offers hundreds of models of prescription eyeglass frames and
sunglasses in a wide range of styles under the Kathy Ireland, Halston,
Playskool, Menrad, Atrio, Jaguar, John Lennon, Kenneth Jay Lane, Harve Bernard,
Sarah Coventry, Oscar de la Renta, Nintendo, Georgio de Marco trademarks and
trade names and under the Company's proprietary Phoenix, Da Vinci, Tarelli,
Details, Landolfi trademarks and/or trade names. The Company's prescription
eyeglass frames and sunglasses, which are characterized by high quality and
design and are often intricately detailed, are affordable, and are priced less
than "designer" eyewear of comparable quality sold by other manufacturers. The
Company's products generally are sold at retail price points between $80 and
$150, while the Company believes that eyewear of comparable quality sold by
other distributors is generally sold at retail price points between $130 and
$300. The following describes certain of the Company's more important licensing
and distribution arrangements:
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KATHY IRELAND. The Company has designed a line of eyeglass frames and
sunglasses for men and women that is endorsed by Kathy Ireland. Kathy Ireland is
one of the world's most recognized super models, with particular recognition for
health and fitness consciousness. The styles, sold exclusively by the Company,
are designed to be stylish, contemporary and casual. They are also intended to
reflect the casual, sports conscious, yet glamorous image of Kathy Ireland. The
frames are offered to retail dispensers at moderate price ranges. The eyeglasses
are designed using a variety of materials, including the latest metal alloys and
plastic colorations. All are available in either ophthalmic or sun styles.
Shapes include cat-eye, rectangles, ovals and "preppie-designs." The Company has
entered into a four year exclusive (sunglasses, eyeglasses, readers and
ophthalmic frames and accessories) and non-exclusive agreement with Kathy
Ireland, Inc. under which the Company has been granted a worldwide license to
use certain licensed products. In addition, Ms. Ireland has agreed to endorse
the Company's line of eyeglasses and provide limited marketing assistance
including attending various marketing events. The Agreement expires on January
30, 2000. The Agreement provides for guaranteed minimum royalties to Kathy
Ireland for the term of the Agreement. The Company is required to pay a royalty
fee based on net sales.
HALSTON. Halston is a world renowned designer of sophisticated and elegant
fashion. Halston eyewear is designed for men and women and is intended to serve
the moderate to upper price market. Each frame is airbrushed with a lacquer to
provide a stylish long-lasting finish. The Company entered into a Supply
Agreement with Styl-Rite Optical Mfg. Co. ("Styl-Rite") under which the Company
has been granted a right to purchase from Styl-Rite certain ophthalmic frames
bearing the Halston trademark for resale to retail outlets and specialty shops.
The Agreement expires on December 31, 1998. The Company has an option to renew
the agreement for an additional three year period provided that it meets certain
minimum purchase requirements and that Styl-Rite renews its license agreement
with Halston Investments, Ltd., the successor-in-interest by assignment from
Halston Trademarks, Inc., owner of the "Halston" trademark.
PLAYSKOOL. The Company has developed a children's line of eyewear that is
marketed under the Playskool brand name. Playskool is one of the most recognized
names in children's products and denotes the largest number of frames in the
industry exclusively to children. The Playskool styles are designed in
consultation with pediatric specialists to insure proper fit for a child's face
and comfort for a child's unique requirements. The frames are designed with fun
colors and light designs, include spring hinges and silicon nosepads to maintain
fit and hypo-allergenic coatings. Frames carry an unconditional guarantee. The
Company has entered into a non-exclusive license agreement with Playskool under
which the Company has been granted a license to use certain licensed products in
the United States. The Agreement expires on December 31, 1998 pursuant to the
second renewal term. The renewal of the agreement is at the discretion of the
licensor. The Agreement provides for guaranteed minimum royalties to the
licensor for the term of the Agreement. The Company is required to pay a royalty
fee based on net sales.
NINTENDO. The Nintendo Eyewear collection is intended to be a functional
children to teen line of eyeglass frames and to be fashionable with quality
features such as dual action spring hinges and double lacquer coatings to add
strength and durability. Nintendo is one of the largest video game companies in
the world and its products are in millions of households in the United States.
The Nintendo Eyewear collection is targeted to the six to fourteen year old age
group, mirroring Nintendo's most heavily penetrated market. The Company entered
into a merchandise license agreement with Nintendo of America, Inc. under which
the Company has been granted a non-exclusive license to manufacture and sell
prescription eyewear, sunglasses and non-prescription sunglasses in the United
States, Canada, Mexico, Panama, and Guatemala. The Agreement expires on December
31, 2000. The Company has an option to renew this Agreement. The Agreement
provides for guaranteed minimum royalties to the licensor for the term of the
agreement. The Company is also required to pay a royalty fee based on net sales.
THE MENRAD GRUPPE. The Company's high end lines of eyewear, including its
Menrad, Atrio and Jaguar line are manufactured by the Menrad Gruppe, a 100
year-old prestigious German manufacturer of
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high-quality precision metal eyeglass frames. The Menrad line of eyeglasses are
intended to exhibit superb anatomical fit, comfort, optical precision and
durability. Menrad frames are made with rare and fine precious metals. The base
metal in many of their frames are nickel-free and every frame is coated with a
plastic film that insures complete protection from metal induced allergies, also
insuring the added benefit of scratch and corrosion resistance. The Menrad
eyewear, which includes sunglasses, is marketed under the Atrio and Menrad
names. The Company has entered into an exclusive distribution arrangement with
Menrad GmbH & Co. KG under which the Company sells certain products in the
United States, excluding Puerto Rico. The Company has an option to renew this
agreement after the expiration date. The Company is subject to certain minimum
purchase requirements. The Company is not required to pay a royalty in
connection with its use of the trademarks.
JOHN LENNON. John Lennon's round, wire framed glasses became an
unmistakable part of his image and a symbol for the mystical and innovative
creativity of his time. The frames vary from high-end to moderate-priced lenses
and include designs for adults, men and women. The Company is negotiating for a
renewal of its distribution agreement with Eagle Eyewear, Inc., to be the
exclusive distributor of adult optical frames and adult sunglasses in the United
States and Canada. The Company would order and purchase John Lennon products
solely from Eagle Eyewear, Inc. Further, Eagle Eyewear, Inc. would retain final
approval of the use of John Lennon's name or likeness by the Company. The
Company would be subject to certain minimum purchase requirements. The Company
is required to pay a royalty fee on a weekly basis.
KENNETH JAY LANE. Kenneth Jay Lane is a world famous designer of costume
jewelry. The Company's Kenneth Jay Lane collection was designed to emulate his
elegant, luxurious design. The collection features unique metal trims, temples,
bridges and colors with colored stones and pearls integrated into the frame
design to achieve a high-fashion appearance. The sunwear collection includes
frames adorned with colored stones and gold and silver points intended to
emulate Kenneth Jay Lane's jewelry designs. The license to Kenneth Jay Lane was
acquired at the time of the Windsor acquisition under a license agreement
between Windsor and Kenneth Jay Lane, under which the Company has acquired an
exclusive right to use the Kenneth Jay Lane name in the United States, Canada,
Puerto Rico, the Caribbean Islands, Central America and Mexico. The Agreement
expired on June 30, 1997. The Company is currently negotiating the renewal of
the Agreement. The Agreement provided for guaranteed minimum royalties to the
licensor and for the payment by the Company of a royalty fee based on net sales.
In addition, the Company was required to spend a certain percentage of net sales
for advertising and promotional purposes.
HARVE BENARD LTD. Harve Benard is an upscale women's clothing designer that
has had a significant name brand recognition for many years. The Harve Benard
eyewear collection is designed to be sophisticated yet practical, designed in a
glamorous, wearable, daytime look. The frame styles feature timeless fashion in
a finely crafted product. The license to Harve Benard was acquired at the time
of the Chanuk acquisition under a license agreement between Chanuk and Harve
Benard Ltd. under which the Company has acquired an exclusive license to use the
Harve Benard mark in connection with the manufacture, distribution and sale of
men's and women's sunglasses and ophthalmic spectacle frames in the United
States and Canada. The Agreement expires on December 31, 1998. The Company has
an option to renew this agreement after the expiration date. The Agreement
provides for guaranteed minimum royalties to the licensor for the term of the
Agreement. The Company is required to pay a royalty fee based on net sales.
SARAH COVENTRY. The Company believes that the Sarah Coventry label
represents classic feminine styling with mass appeal. Sarah Coventry products
appear in national advertising in consumer magazines like Redbook and Glamour.
Targeted to the value conscious customer, the Sarah Coventry eyewear collection
is intended to offer a quality image at an excellent value. The Company has
entered into two separate exclusive license agreements with Lifestyle Brands,
Ltd., owner of the Sarah Coventry trade name, under which the Company has been
granted a license to manufacture and sell sunglasses, sunglass cases,
accessories, ophthalmic frames, and cases under the Sarah Coventry trade name.
The Agreements
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expire on June 30, 1998. With respect to the license related to sunglasses,
sunglass cases and related accessories, such license shall renew automatically
for an additional three year term if the Company achieves certain minimum net
sales. Both Agreements provide for guaranteed minimum royalties to the licensor
for the term of the Agreements. The Company is required to pay a royalty fee
based on net sales.
FLEX SPECS. Flex Specs are flexible eyeglass frames with a mechanism at the
temple hinge that maintains constraint and strong pressure on the eyeglass
frame. In addition, the Flex-Specs frame has no screws at the hinge. The Company
has licensed exclusively the right to distribute Flex-Specs eyeglass frames in
the United States.
OTHER BRANDS. The Company has also entered into license agreements with
Oscar de la Renta, and Georgio de Marco. Additionally, the Company has arranged
for the manufacture of a variety of proprietary brands, including agreements
with Tarelli Eyewear and Landolfi, Phoenix and DaVinci, intended to provide
European styling at moderate prices to its consumers.
MARKETING AND ADVERTISING
The Company markets its eyewear products primarily to independent retailers,
mass merchandisers, chain stores, department stores and international
distributors. The Company's sales efforts include the direct channels of a
dedicated sales force and telephone sales. The Company advertises primarily
through print trade journals and the distribution of catalogs. The Company
intends to expand its print advertising to include consumer oriented media. In
addition, through promotions, the Company assists the retailers in enhanced
distribution of the Company's products to consumers. Promotional incentives to
sell-through the Company's eyewear plus cooperative advertising to the retailers
clientele will generate additional distribution for the Company.
CHAIN STORES, DEPARTMENT STORES AND MASS MERCHANDISERS. Chain stores and
superstores have begun to be a factor in the market share of eyewear. In 1995,
chain stores and superstores comprise 18% of the retail market or $2.5 billion.
Further, according to Jobson Optical Group Data Base, in 1995, the top 100 chain
stores held over 29% of the retail market. A substantial majority of the
Company's sales during fiscal 1996 included sales to customers in this category.
INDEPENDENT RETAILERS. Independent optical shops and eyecare professionals,
including franchised comprised over 60% of the retail eyewear market during
1996. The Company employs direct sales efforts to identify and market to
independent retailers this market through a dual sales force, promoting distinct
product lines. Although this constitutes a large part of the eyeglass market,
this category accounts for a lesser part of the Company's sales during fiscal
1996 included sales to customers in this category.
INTERNATIONAL DISTRIBUTORS. The Company believes that substantial sales
opportunities may be exploited outside of the United States. Although the
Company has limited sales abroad it intends to expand its international business
to markets outside the United States. Sales during fiscal 1996 to customers in
this category were not material, although the Company has identified foreign
sales as a source of possible expansion.
The Company's sales to its five largest customers represented over 62% of
its sales in fiscal 1996 and 51% in 1997 (30% on a pro forma basis giving effect
to the acquisitions of the assets of Windsor and Renaissance). Sales to the
Company's top customer, Wal-Mart accounted for approximately 51%, of the
Company's sales in 1996 and approximately 35%, of its sales in 1997 (20% on a
pro forma basis giving effect to the acquisitions of the assets of Windsor and
Renaissance). The Company anticipates that sales to its top five customers will
continue to account for a significant percentage of its sales. The Company has
no long term commitments or contracts with any of its customers. The loss or
decreased sales from one or more of these customers and in particular, Wal-Mart,
would have a material adverse effect on the Company's financial condition. The
inability of any of the Company's significant customers to satisfy any of their
bills at any time or on a timely basis for any reason could have a material
adverse effect on the financial condition of the Company.
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The Company makes use of dedicated and independent sale force of an
aggregate of 30 sales representatives. This direct sales force targets small,
medium, and large-sized retailers from high-end boutiques to discount frame
outlets. The sales force is equipped to provide sales training, support, and
management consulting to the retailer. In addition, sales representatives are
equipped to assist with retail window displays, designer boutique creating, and
eyewear promotions.
The Company also employs telephone sales methods which consist of a
telemarketing program developed by the Company that will enable small accounts
and remote location accounts to gain access to the Company's variety of products
and services. Monthly contacts by phone representatives assist these key
accounts in the selection and distribution of products. The Company plans to
expand its telesale organization to include six additional employees on a
part-time basis.
National trade shows and international conventions have become the sounding
boards for the global eyewear industry. New products are launched and designers
showcase their creations and themselves during these events. The Company plans
to exhibit its products to an increasing number of distributors, retailers, and
consumers worldwide. The four most popular shows occur annually and include
Silmo in Paris, Mido in Milan, and Vision Expo in New York and California.
The Company develops point of purchase materials that feature the Company's
products and brands which are provided to individual retail accounts. Original
display materials are periodically constructed throughout each year to help
design boutique atmospheres within the retail accounts and properly display the
Company's products in the account's showroom and window display. Some of these
products include actual record albums to display the John Lennon Collection,
Playskool figurines and toys to complement the children's line, designer
scarves, hats and accessories to cross-merchandise designer eyewear. The Company
believes that advertising a designer's eyewear adjacent to other products also
created by the designer is a valuable method for creating name recognition and
demand for the Company's product.
SOURCES OF SUPPLY
The Company arranges for the production of its products with primarily
foreign suppliers on a purchase order basis on standard commercial terms,
secured in each case by the Company's general credit. At the present time, the
Company secures its supplies in three ways. First, the Company enters into
arrangements with certain suppliers whereby the Company provides such suppliers
with, among other things, specifications, materials and designs pursuant to
which certain products requested by the Company are made. Second, the Company
enters into arrangements with certain suppliers whereby such specifications and
designs are provided to the Company who then has the option of having products
made pursuant to such specifications and designs. Finally, the Company enters
into arrangements whereby certain finished products are presented to the Company
who then chooses from such selections presented. These arrangements have worked
well for the Company and, the Company intends to continue such relationships in
the future.
The Company imports substantially all of its frames from international
suppliers and, therefore, its prices for and supply of those frames may be
adversely affected by changing economic conditions in foreign countries and
fluctuations in currency exchange rates. The Company may also be subject to
other risks associated with international operations, including tariff
regulations and requirements for export licenses, unexpected changes in
regulatory requirements, receivable requirements, difficulties in managing
international operations, potentially adverse tax consequences, economic and
political instability, restrictions on repatriation of earnings and the burdens
of complying with a wide variety of foreign laws. In addition, the laws of
certain countries may not protect the Company's products and intellectual
property rights to the same extent as do the laws of the United States. There
can be no assurance that such factors will not have a material adverse effect on
the Company's future international sales or licenses and, consequently, on the
Company's business and operations as a whole.
23
<PAGE>
COMPETITION
The eyewear industry is highly competitive and fragmented. The Company
competes with different companies in different markets. The prescription and
non-prescription eyewear markets are highly competitive. The Company competes
with a number of established companies, including Luxotica, Safilo, Marchon and
Bausch & Lomb Incorporated, which together control a substantial portion of the
premium market. In the sunglass area, the Company competes with a variety of
competitors with substantially greater financial and other resources than the
Company including, Bausch & Lomb, the manufacturer of Ray-Ban sunglasses, Oakley
and Gangoyles. All of these companies have substantially greater resources and
better name recognition than the Company and sell their products through broader
and more diverse distribution channels. In addition, several of these
competitors have their own manufacturing facilities. The Company could also face
competition from new competitors, including established branded consumer
products companies, such as Nike, Inc., that also have greater financial and
other resources than the Company. In addition, as the Company expands
internationally, it will face substantial competition from companies that have
already established their products in international markets and consequently
have significantly more experience in those markets than the Company. The
Company also faces competition from the expanded use of contact lenses and
expanding laser surgery to correct vision. The major competitive factors in the
eyewear market include fashion trends, brand recognition, method of distribution
and the number and range of products offered. In addition, to retain and
increase its market share, the Company must continue to be competitive in the
areas of price, quality and performance, technology, intellectual property
protection and customer service.
LICENSES AND TRADEMARKS
The Company owns and has obtained licenses to various domestic and
international trademarks related to its products and business. These licenses
expire at various times over the next four years. While these trademarks in the
aggregate are important to the Company's competitive position, no single
trademark or license thereof is material to the Company. The trade names
Halston, Kathy Ireland, Playskool and others and certain trademarks are owned by
various entities and licensed to the Company for limited purposes on a royalty
basis.
EMPLOYEES
At June 30, 1997, the Company had 55 full-time employees and 5 part-time
employees. Approximately 19 of such employees are engaged in administrative
positions, 3 in sales management, six in management and 32 provide warehouse and
distribution support. The Company considers its relations with its employees to
be good. None of the Company's employees are represented by labor unions. See
"Legal Proceedings."
PROPERTY
In September 1995, the Company leased its principal offices occupying 30,000
square feet in Philadelphia, Pennsylvania, which are used to house all the
Company's management, inventory and distribution operations. Pursuant to the
lease relating to such facility, the Company is obligated to make monthly rental
payments of approximately $11,000. Such lease expires in 2000. The Company
intends to move to an alternate location in Bennsalem, Pennsylvania, for its
management, inventory and distribution operations. The new facility will have
64,000 square feet. The Company has not yet negotiated a new lease but expects
annual base rent to be approximately $237,000 per year through November 1997.
Thereafter, the rent would be approximately $20,000 to $25,000 per month. The
Company will be required to sublease the Philadelphia facility, and has not yet
identified a subtenant.
LEGAL PROCEEDINGS
The Company has entered into a settlement agreement relating to a complaint
filed by a former employee and the Teamsters Union Local No. 118 a/w
International Brotherhood of Teamsters AFL-C10 against the Company with the
National Labor Relations Board. The Company has agreed to post a notice for a
period of 60 days relating to the rights of employees under the National Labor
Relations Act. The Company is not otherwise a party to any material legal
proceedings.
24
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --------- ------------------------------------------
<S> <C> <C>
Rudy A. Slucker........................... 47 Chairman of the Board of Directors
Barry Budilov............................. 41 President and Chief Executive Officer
Kenneth B. Kitnick........................ 35 Executive Vice President
Raymond Green............................. 35 Treasurer
Jay Rice(1)............................... 45 Director
Jeffrey Seiken(1)......................... 44 Director
</TABLE>
- ------------------------
(1) Member of the Compensation and Audit Committee.
In connection with the Offering, the Company intends to increase the size of
the Board of Directors by the end of 1997 to accommodate two additional
directors who will not be officers or employees of the Company.
The business experience of each of the executive officers and directors is
set forth below.
RUDY A. SLUCKER has served as Chairman of the Board of Directors of the
Company since May 1995. Mr. Slucker also serves on a full time basis as Chairman
of the Board of Directors, President and Chief Executive Officer of the Teardrop
Golf Company, a Nasdaq-listed company which position he has held since September
1996. Mr. Slucker was the Chief Executive Officer of the Atlas Group of
Companies, Inc. ("Atlas"), which imported and marketed hardware and consumer
products, from 1978 until 1990, when it was sold. Since 1990, Mr. Slucker has
been a venture capital investor. He currently serves on the board of directors
and/or is a principal stockholder of the following companies: Lilli Group, a
knitwear manufacturer; The Sled Dogs Company, a Nasdaq-listed manufacturer of
sporting goods; Major League Fitness, a chain of fitness centers associated with
Major League Baseball through a licensing agreement; and Babylon Enterprises and
Beacon Concessions, which, together, currently own and operate the Beacon
Theater in Manhattan. Mr. Slucker graduated from the University of Cincinnati
with a Bachelors Degree in finance in 1971.
BARRY BUDILOV has been President and Chief Executive Officer of the Company
since inception. From 1989 to 1995, Mr. Budilov served as the President of
Chanuk, the predecessor of the Company. Mr. Budilov is a certified public
accountant. Prior thereto and since 1987, Mr. Budilov served as Chief Financial
Officer of Eco-Med, Inc, which was sold in 1989 to Avicare, Inc., a
publicly-traded company. Prior thereto and since 1980, Mr. Budilov served as a
Vice President for Metro Equity, Inc., a management consulting firm that managed
investments in the nursing home, retail and wholesale goods industries and the
real estate industries. For 1977 through 1980, Mr. Budilov was employed by
Touche Ross & Company, as a certified public accountant. Mr. Budilov graduated
magna cum laude from George Washington University with a Bachelor's Degree in
accounting in 1977.
KENNETH B. KITNICK has served as Executive Vice President of the Company
since June 1996. Prior to that he spent sixteen years in the optical industry as
Vice President and Chief Operating Officer of Windsor which imported and
marketed eyewear products. Mr. Kitnick graduated from Franklin & Marshall
College with a Bachelor's Degree in mathematics in 1983.
RAYMOND GREEN has served as Treasurer of the Company since 1994. From 1992
to 1994 he served as the controller for The Backe Group, Inc., a holding company
in the communications field. Prior thereto and since 1990, he was the Controller
for Water-Jel Technologies, Inc., a public manufacturing company. Prior thereto
and since 1987, he was employed as a staff accountant for Abo, Uris &
Altenburger, a CPA firm. Mr. Green graduated from Iona College in 1983 with a
Bachelor's Degree in finance.
25
<PAGE>
JAY RICE has been the managing partner with the law firm of Nagel Rice &
Dreifuss since 1983. He served as a member of the advisory board to Summit Bank
from 1989 to 1991. Since 1990, he has served as a trustee and is now the
President of the Jewish Community Housing Corp. and has been the President of
the Board of Trustees of the United Jewish Federation of Metrowest since 1995.
Prior to joining the law firm, Mr. Rice served as a law clerk to the Honorable
Baruch S. Seidman of the New Jersey Superior Court, Appellate Division from 1977
to 1978. Mr. Rice has authored several articles and has served as a lecturer.
Mr. Rice is a member of the Essex County Bar Association, the New Jersey State
Bar Association (serving as Chairman of the Equity Jurisprudence Committee from
1989 to 1991) and the American Bar Association. Mr. Rice received his Juris
Doctorate from Rutgers University in 1977.
JEFFREY SEIKEN is presently practicing in his own law firm. From 1988
through 1996, Mr. Seiken was a partner with Rush & Seiken. He was one of the
initial founders and investors in American Health Care, a corporation which
began in 1988. American Health Care provides nursing home care to elderly
individuals with facilities in New Jersey, Alabama, Indiana and Oregon. In
addition, Mr. Seiken has also been involved in real estate development since
1985. Mr. Seiken has also served as a member of the Whitemarsh Township,
Pennsylvania Sewer Authority and the Whitemarsh Township Planning Commission.
The Underwriter has the right to appoint an observer to attend all meetings
of the Board of Directors. See "Underwriting--Observer to the Board of
Directors."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has appointed two committees: the
Audit Committee and the Compensation Committee. The members of the Audit
Committee include Jeffrey Seiken and Jay Rice. The Audit Committee periodically
reviews the Company's auditing practices and procedures, makes recommendations
to management or to the Board of Directors as to any changes to such practices
and procedures deemed necessary from time to time to comply with applicable
auditing rules, regulations and practices, and recommends independent auditors
for the Company to be elected by the stockholders. The members of the
Compensation Committee are Jeffrey Seiken and Jay Rice. The Compensation
Committee meets periodically to make recommendations to the Board of Directors
concerning the compensation and benefits payable to the Company's executive
officers and other senior executives. The Company reimburses directors for their
out-of-pocket expenses incurred in attending Board and Committee meetings.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company intends to enter into an employment agreement with Barry
Budilov, effective on the effective date of this Offering, pursuant to which he
will serve on a full-time basis as President and Chief Executive Officer of the
Company for a period of three years. The agreement provides for an annual base
salary of $200,000. The agreement contains a confidentiality provision and a
provision prohibiting Mr. Budilov from competing with the Company for a period
of one year subsequent to termination of employment.
The Company intends to enter into a consulting agreement with Rudy Slucker,
effective on the effective date of this Offering, pursuant to which he will
serve as Chairman of the Board of the Company for a period of three years. The
agreement provides for an annual consulting fee of $100,000. Mr. Slucker is not
required to devote any minimum amount of time to the affairs of the Company and
is the subject of an employment agreement with another company. The agreement
contains a confidentiality provision and a provision prohibiting Mr. Slucker
from competing with the Company for a period of one year subsequent to
termination of employment.
Upon consummation of the Acquisition of substantially all of the assets of
Windsor, the Company entered into an employment agreement with Kenneth Kitnick
who became the Executive Vice President of the Company and a consulting
agreement with Jay Kitnick, Kenneth Kitnick's father. The employment agreement
with Kenneth Kitnick became effective on June 26, 1996, pursuant to which he is
serving on a
26
<PAGE>
full-time basis as a Vice President of the Company for a period of four years.
The agreement provides for an initial base salary of $105,000 and provides for
annual minimum increases through the year 2000 to a maximum of $120,000. The
Agreement has been amended, as of June 30, 1997, to provide for the grant as of
the date of the Agreement to Kenneth Kitnick of options to purchase 151,667
shares of Common Stock for $1.50 per share for five years. The agreement
contains a non-compete provision which prohibits Kenneth Kitnick from directly
or indirectly competing with the Company for a period of one year upon
termination. For a description of the Consulting Agreement with Jay Kitnick, see
"Certain Relationships and Related Party Transactions."
The Company has entered into a five-year consulting agreement with Edward
Kauz which became effective on February 27, 1997. The agreement provides for
aggregate annual payments to Mr. Kauz of $200,000 subject to certain conditions
set forth in a supplemental agreement, dated February 27. In addition, under an
amendment to the consulting agreement dated as of June 30, 1997, Mr. Kauz agreed
to waive his right to serve as Vice Chairman of the Board of Directors and has
been granted as of February 27, 1997 a five-year option to purchase 180,833
shares of Common Stock for five years for $3.00 per share.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
As permitted by the Delaware General Corporation Law (the "DGCL"), the
Certificate of Incorporation includes a provision that eliminates personal
liability for its directors for monetary damages for breach of fiduciary duty as
a director except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law;
(iii) under Section 174 of the DGCL; and (iv) for any transaction from which the
director derived an improper personal benefit.
As permitted by Section 145 of the DGCL, the By-Laws provide that (i) the
Company is required to indemnify its directors and officers to the fullest
extent permitted by the DGCL; (ii) the Company may indemnify other persons as
set forth in the DGCL; (iii) rights conferred in the By-Laws are not exclusive;
and (iv) the Company is authorized to enter into indemnification agreements with
its directors, officers, employees and agents. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted for directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions or otherwise, the Company has been advised that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore, unenforceable.
The Company, intends to apply for, and expects to obtain, directors and
officers liability insurance with an annual aggregate coverage limit of
$2,000,000.
DIRECTOR COMPENSATION
At present no separate cash compensation or fees are payable to directors of
the Company, other than reimbursement of expenses incurred in connection with
attending meetings. The Company expects, however, that new non-employee
directors not otherwise affiliated with the Company or its stockholders will be
paid $500 per meeting and reimbursement for reasonable out-of-pocket costs for
attending meetings.
27
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company for services rendered in all capacities for named executive officers of
the Company who received compensation in excess of $100,000 during the period
from inception to March 31, 1996 and the year ended March 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION SECURITIES
FISCAL --------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#)
- --------------------------------------------------------- ----------- ---------- --------------- -------------------
<S> <C> <C> <C> <C>
Rudy A. Slucker, Chairman of the Board................... 1997(1) $ 260,000 0 0
1996(2) $ 172,000 0 54,833
Barry Budilov, President and Chief Executive Officer..... 1997(1) $ 250,000 0 0
1996(2) $ 169,900 0 54,833
</TABLE>
- ------------------------
(1) Messrs. Slucker and Budilov will be compensated at annual rates of $100,000
and $200,000, respectively, under agreements that are effective as of the
effective date of this offering.
(2) Fiscal 1996 consisted of approximately 11 months.
No options were deemed to be granted to the Chief Executive Officer or other
named executive officers of the Company during the period from April 1, 1996
through March 31, 1997.
No stock options were exercised by the Chief Executive Officer or other
named executive officers of the Company. The following table sets forth certain
information regarding unexercised options held by the Chief Executive Officer
and other named executive officers of the Company at March 31, 1997.
AGGREGATED OPTION EXERCISES THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT MARCH 31, IN-THE- MONEY OPTIONS AT
1997 MARCH 31, 1997($)(1)
------------------------ -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------------------------------ ------------------------ -------------------------
<S> <C> <C>
Rudy Slucker................................................ 54,833/0 $ 315,289/0
Barry Budilov............................................... 54,833/0 $ 315,289/0
</TABLE>
- ------------------------
(1) Assuming a value of $6 per share.
28
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On May 3, 1995, the Company was formed by Rudy A. Slucker, the Company's
current Chairman of the Board of Directors, and Barry Budilov, the current
President and Chief Executive Officer of the Company, at which time each of Mr.
Slucker and Budilov were issued 1,750,000 shares of Common Stock for $.0003 per
share and, as of such date, were each granted options to acquire 54,833 shares
of Common Stock for $.25 per share.
On May 10, 1995, the Company acquired from Chanuk the predecessor to the
Company substantially all of the assets of Chanuk valued at approximately $6
million and assumed an aggregate of approximately $5.7 million of liabilities of
the business of Chanuk. The assumed liabilities included indebtedness of Chanuk
to Mr. Slucker of approximately $508,000. In addition, an uncle of Mr. Budilov's
wife was repaid $250,000 in debt from the proceeds of the sale. Chanuk, a
company engaged in the wholesale sale and distribution of eyewear, was a company
owned approximately 10% by a partnership controlled by Rudy A. Slucker and 90%
by the mother-in-law of Barry Budilov. In addition, Messrs. Budilov and Slucker
issued promissory notes of $343,500 each to Chanuk as partial consideration for
the acquisition by the Company of the business of Chanuk.
On May 8, 1995, in consideration of the issuance of promissory notes to
Chanuk, the Company issued promissory notes for $343,500 to each of Rudy A.
Slucker and Barry Budilov. In addition, on May 8, 1995, the $508,000 in debt
previously owed from Chanuk to Mr. Slucker was assumed by the Company and took
the form of a promissory note. All three obligations are represented by demand
promissory notes that bear interest at 8% per annum. On the effective date of
this Offering, the remaining balance of $1,181,000 of such debt will be
converted into 118,100 shares of Series A Preferred Stock.
Upon consummation of the acquisition of Chanuk, in May 1995, the Company
entered into a Consulting Agreement with Chanuk. The agreement became effective
on May 10, 1995 and is scheduled to terminate on May 9, 2005. Pursuant to the
agreement, Chanuk is to provide advisory and consulting services to the Company
and shall receive the sum of $260,000 payable over a ten year period in
installments of $500 per week. The time and effort to be devoted by Chanuk to
the Company on a weekly basis shall not exceed five hours per week.
In June 1996, the Company acquired substantially all of the assets of
Windsor (the "Windsor Acquisition"). In connection with the Windsor Acquisition,
the Company acquired trademark licenses with Kenneth Jay Lane and John Lennon,
among others. The aggregate consideration for the Windsor Acquisition was
$550,000, including $100,000 in cash and two promissory notes, payable to
Windsor, in the aggregate principal amount of $450,000. Kenneth Kitnick, who
subsequently became an officer of the Company was an officer and principal
shareholder of Windsor.
Upon consummation of the Windsor Acquisition, the Company entered into an
employment agreement with Kenneth Kitnick and a consulting agreement with Jay
Kitnick. Jay Kitnick is the father of Kenneth Kitnick. The three-year consulting
agreement with Jay Kitnick which provides for 36 monthly payments of $6,944
commencing on June 20, 2004. The agreement contains a non-compete provision
prohibiting Jay Kitnick from directly or indirectly competing with the Company
for a period of three years from June 26, 1996. See "Management--Executive
Compensation"
In February 1997, the Company acquired from Summit Bank (the "Bank"),
pursuant to a Collateral Sale Agreement (the "Renaissance Acquisition"),
substantially all of the assets of Renaissance. The Bank had acquired the assets
of Renaissance in a foreclosure proceeding instituted by the Bank. The aggregate
consideration paid to the Bank for Renaissance was $3,446,000. Edward Kauz, who
had a right to become a Vice Chairman of the Board of the Company was an
officer, principal stockholder and significant shareholder of a debtor to
Renaissance.
Mr. Kauz remains the sole stockholder of Renaissance. At the time that the
Company acquired the assets of Renaissance, a company 50% owned by Mr. Kauz,
owed Renaissance $2.8 million which receivable has been written down to no value
at the time of the acquisition of Renaissance. The Company has entered into a
five-year consulting agreement with Edward Kauz which became effective on
February 27, 1997. The agreement provides for aggregate payments to Mr. Kauz of
$200,000 subject to certain
29
<PAGE>
conditions set forth in a supplemental agreement, dated February 27, 1997. In
addition, under an amendment to such agreement dated as of June 30, 1997, Mr.
Kauz waived his right to serve as Vice Chairman of the Board of Directors and
was granted as of February 27, 1997 a five-year option to purchase 180,833
shares of Common Stock for five years for $3.00 per share.
In connection with the revolving loan facility from CoreStates Bank to the
Company, each of Rudy Slucker and Barry Budilov, and their respective spouses,
have provided personal guarantees of no more than $875,000 each securing the
Company's indebtedness.
On February 4, 1997, in connection with, and to assist the Company in
financing its costs related to the acquisition of substantially all of the
assets of Renaissance, Rudy A. Slucker loaned the Company $280,000, payable upon
demand with interest at 8% per annum. This loan will be repaid from the proceeds
of this Offering.
Each of Mr. Slucker and Mr. Budilov have each indicated that they intend to
make a gift of 150,000 shares of Common Stock to the Slucker Family Foundation,
Inc. of which Mr. Slucker is a trustee on the effective date of this Offering.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of June 30, 1997, and as
adjusted to reflect the sale of the Shares offered hereby, by (i) each of the
Company's directors and executive officers; (ii) each person who is known to the
Company to own beneficially more than 5% of the Company's shares of Common Stock
and (iii) all directors and executive officers of the Company as a group. Unless
otherwise indicated, the persons named in this table have sole voting and
investment power with respect to the shares of Common Stock shown as
beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP
PRIOR TO BENEFICIAL OWNERSHIP
NAME OFFERING AFTER OFFERING
- ----------------------------------------------------------- ---------- -----------------------
<S> <C> <C> <C> <C>
NUMBER PERCENT NUMBER PERCENT
---------- --------- ---------- -----------
Rudy Slucker(1)(2)......................................... 1,804,833 50.00% 1,954,833(3) 35.19%
Barry Budilov(2)........................................... 1,804,833 50.00% 1,654,833 29.79%
Kenneth Kitnick(4)......................................... 151,667 4.15% 151,667 2.68%
Jay Rice................................................... 0 0
Jeffrey Seiken............................................. 0 0
Slucker Family Foundation, Inc.(5)......................... 0 300,000 5.45%
All directors and executive officers as a group
(6 persons)(1)(2)(3)..................................... 3,761,333 100.00% 3,761,333 65.29%
</TABLE>
- ------------------------
(1) Includes 94,680 shares of Common Stock held in the names of Mr. Slucker's
wife and two children over which Mr. Slucker disclaims beneficial ownership.
(2) Includes options to acquire 54,833 shares of Common Stock. Does not include
an aggregate of 118,100 shares of Series A Preferred Stock that is not
convertible into Common Stock. See "Description of Securities."
(3) Includes 300,000 shares of Common Stock to be donated by Mr. Slucker and Mr.
Budilov on the effective date of this Offering to the Slucker Family
Foundation, Inc. over which Mr. Slucker will have voting and dispositive
control. Up to 150,000 shares to be owned by the Slucker Family Foundation,
Inc. may be sold upon the exercise of the Underwriter's over-allotment
option. If the Underwriter's over-allotment option is exercised to the
extent of 150,000 shares, beneficial ownership for the Slucker Family
Foundation after the Offering, as well as for Rudy Slucker, will each be
reduced by approximately 2.7%.
(4) Includes options to acquire 151,667 shares of Common Stock of the Company.
(5) Mr. Slucker, his wife, and his son, Ronald Slucker are co-trustees of the
Slucker Family Foundation. The address of the Slucker Family Foundation is
66 Duffield, East Orange, New Jersey.
30
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company is 11,000,000 consisting of
10,000,000 shares of Common Stock, $.01 par value and 1,000,000 shares of
Preferred Stock, $.01 par value. As of the date of this Prospectus, 3,500,000
shares of Common Stock are outstanding and held of record by five stockholders.
Upon the completion of this Offering there will be 5,500,000 shares of Common
Stock outstanding (5,650,000 if the Underwriter's over-allotment option is
exercised in full).
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of Preferred Stock without further stockholder approval. The
Preferred Stock may be divided into such classes or series as the Board of
Directors may determine by resolution. The Board of Directors is authorized to
determine and fix the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock , including
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices and liquidation preferences and to fix the number of shares of
any series of Preferred Stock and the designation of any such series of
Preferred Stock. Currently no Preferred Stock is outstanding.
As of the effective date of this offering, $1,181,000 of indebtedness of the
Company to its two principal stockholders, Rudy A. Slucker, the Company's
Chairman of the Board of Directors and Barry Budilov, the Company's President,
will be converted into 118,100 shares of Series A Preferred Stock at a
conversion rate of $10 per share. Each holder of Series A Preferred Stock will
be entitled to receive dividends at an annual rate of $.30 per share on a
cumulative basis. The shares of Series A Preferred Stock are not convertible
into shares of the Company's Common Stock, and will not be entitled to vote on
any matters.
The shares of Series A Preferred Stock may be redeemed , commencing three
years from the effective date of this Offering, for $10 per share subject to
adjustment upon the occurrence of certain events, such as dividends or a stock
split. Further, the holders of such Series A Preferred Stock may require the
redemption of the shares of Series A Preferred Stock commencing March 31, 1999
provided, that the net income for the Company for the year ending March 31, 1999
or March 31, 2000 exceeds $.60 and $.75 per share, respectively.
In the event of any liquidation, dissolution or winding up of the Company
(each, a "Liquidation"), holders of Series A Preferred Stock will be entitled to
receive a liquidation preference of $10 per share plus all declared but unpaid
dividends on such shares. After the payment of all liquidation preferences, any
remaining assets or property distributable upon a Liquidation will be divided
pro rata among the holders of Common Stock and Preferred Stock on an
as-converted basis. In the event the assets of the Company are insufficient to
pay the full preferential amounts to all holders of Preferred Stock, the assets
of the Company shall be distributed ratably among such holders in proportion to
the product of the liquidation preference for each such share and the number of
shares held by such holder.
COMMON STOCK
The holders of the shares of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. Subject
to preferences that may be applicable to any outstanding shares of Preferred
Stock, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of the funds
legally available for the payment of dividends. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, subject to the
liquidation preferences of Preferred Stock, the holders of Common Stock are
entitled to receive any declared and unpaid dividends, in addition to being
entitled to share ratably in all assets remaining after payment of liabilities
and liquidation preferences of any then outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights to convert their Common Stock
31
<PAGE>
into any other securities. There are no redemption or sinking fund provisions
applicable to the Common Stock.
All outstanding shares of Common Stock have been duly authorized and validly
issued and are fully paid and non-assessable, and the shares of Common Stock
issued upon completion of this Offering have been duly authorized and, when
issued, will be fully paid and nonassessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent registrar for the Shares is the American Stock Transfer &
Trust Company, 40 Wall Street, New York, New York 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the shares of
Common Stock of the Company, and no predictions can be made as to the effect, if
any, that market sales of Shares or the availability of such Shares will have on
the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect prevailing market price of the Common Stock and
the ability of the Company to raise capital through a sale of equity securities.
Upon the closing of the Offering, the Company will have 5,500,000 (5,650,000
if the underwriter over allotment option is exercised in full) shares of Common
Stock outstanding. Of those shares, the 2,000,000 Shares sold in the Offering
(2,300,000 Shares if the Underwriter's over-allotment option is exercised in
full) will be freely tradable without restriction, except as to affiliates of
the Company, or further registration under the Securities Act. The remaining
Shares held by existing shareholders are "restricted securities" within the
meaning of Rule 144 promulgated under the Securities Act and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption contained in Rule 144. Rule
701 under the Securities Act provides that the shares of Common Stock acquired
on the exercise of options granted under a written compensatory plan of the
Company or contract with the Company prior to the date of this Prospectus may be
resold by persons, other than Affiliates, beginning 90 days after the date of
this Prospectus, subject only to the manner of sale provisions of Rule 144, and
by Affiliates under Rule 144 without compliance with its one-year minimum
holding period, subject to certain limitations. There are 499,333 shares of
Common Stock issuable upon the exercise of outstanding options (the "Option
Shares"). Beginning 90 days after the date of the Prospectus, all of the Option
Shares would be eligible for sale in reliance on Rule 701.
In general, under Rule 144(e), as currently in effect, a stockholder (or
shareholders whose shares are aggregated), including an affiliate, who has
beneficially owned for at least one year shares of Common Stock that are treated
as "restricted securities," would be entitled to sell publicly, within any
three-month period, up to the greater of 1% of the then outstanding shares of
Common Stock (55,000 shares immediately after the completion of this offering)
or the average weekly reported trading volume in the Common Stock during the
four calendar weeks preceding the date on which notice of sale is given,
provided certain requirements are satisfied. In addition, affiliates of the
Company must comply with additional requirements of Rule 144 in order to sell
shares of Common Stock (including shares acquired by affiliates in this
Offering). Under Rule 144, a stockholder deemed not to have been an affiliate of
the Company at any time during the 90 days preceding a sale by him, and who has
beneficially owned for at least two years shares of Common Stock that are
treated as "restricted securities," would be entitled to sell those shares
without regard to the foregoing requirements. Since all outstanding shares of
Common Stock have been held for at least one year and are not subject to the
above described restriction on sale, they will be eligible for immediate sale
without restriction in the public market.
32
<PAGE>
The holders of the Underwriter's Warrants will also have certain demand and
incidental registration rights with respect to the Underwriter's Warrants and
the 200,000 Warrant Shares commencing after the date of this Prospectus.
The Company and each of its directors, officers and stockholders have agreed
with the Underwriter that they will not offer, assign, issue, sell, hypothecate
or otherwise dispose of any Shares or any securities exercisable for or
convertible into shares of Common Stock for a period of 18 months after the date
of this Prospectus without the prior, written consent of the Underwriter. See
"Underwriting."
UNDERWRITING
GENERAL
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to Hampshire
Securities Corporation (the "Underwriter"), and the Underwriter has agreed to
the purchase from the Company, on a firm commitment basis, the 2,000,000 Shares
offered hereby.
A copy of the Underwriting Agreement has been filed as an exhibit to this
Registration Statement, to which reference is hereby made. The Underwriting
Agreement provides that the obligations of the Underwriter are subject to
certain conditions. The Underwriter shall be obligated to purchase all of the
Shares (other than those covered by the Underwriter's over-allotment option
described below), if any are purchased.
The Underwriter has advised the Company that it proposes to offer the Shares
to the public at the initial public offering price set forth on the cover page
of this Prospectus and that it may allow to certain dealers who are members of
the National Association of Securities Dealers, Inc. (the "NASD") and to certain
foreign dealers, concessions not in excess of $ per Share of which
amount a sum not in excess of $ per Share may in turn be reallowed by
such dealers to other dealers who are members of the NASD and to certain foreign
dealers. After the initial public offering, the offering price, discount and
reallowance may be changed by the Underwriter.
The Company has agreed to pay the Underwriter an expense allowance, on a
non-accountable basis, equal to 3% of the gross proceeds derived from the sale
of 2,000,000 Shares offered hereby (or 2,300,000 Shares if the Underwriter's
over-allotment option is exercised in full). The Company has paid an advance on
such allowance of $50,000. The Company has also agreed to pay certain of the
Underwriter's expenses in connection with the Offering, including expenses in
connection with qualifying the Shares offered hereby for sale under the laws of
such states as the Underwriter may designate and the placement of tombstone
advertisements.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments that the Underwriter may be required to make in respect
thereof.
The Company and each of its officers, directors and stockholders have agreed
not to offer, assign, issue, sell, hypothecate or otherwise dispose of any
Shares or securities exercisable for or convertible into Shares ("Securities")
for a period of 18 months from the date of the Prospectus without the prior,
written consent of the Underwriter.
Prior to the Offering, there has been no public trading market for the
Common Stock. The initial public offering price for the Shares will be
determined by negotiations between the Company and the Underwriter. Among the
factors to be considered in such negotiations will be prevailing market
conditions, the results of the operations of the Company in recent periods, the
market capitalization and stages of development of the Company, estimates of the
business potential of the Company, the present state of the Company's management
team and other factors deemed relevant.
33
<PAGE>
The Underwriter has advised the Company that it does not intend to confirm
sales of the Shares offered hereby to any account over which it exercises
discretionary authority.
The Company and the Slucker Family Foundation have granted the Underwriter
an option, exercisable during the 45-day period commencing on the date of this
Prospectus, to purchase at the public offering price per Share less the
underwriting discounts and commissions, up to 150,000 shares of Common Stock
each for the sole purpose of covering over-allotments, if any. After the
commencement of the Offering, the Underwriter may confirm sales of shares of
Common Stock subject to this over-allotment option. Purchases of shares of
Common Stock upon exercise of the over-allotment option will result in the
realization of additional compensation by the Underwriter.
In connection with the Offering, the Underwriter and certain selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Shares. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase
shares of Common Stock for the purpose of stabilizing its market price. The
Underwriter also may create a short position for the account of the Underwriter
by selling more shares of Common Stock in connection with the Offering than it
is committed to purchase from the Company and in such case may purchase shares
of Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriter may also cover all or a
portion of such short position, up to 300,000 shares of Common Stock, by
exercising the Underwriter's over-allotment option referred to above. In
addition, the Underwriter may impose "penalty bids" whereby it may reclaim from
a dealer participating in the Offering the selling concessions with respect to
shares of Common Stock that are distributed in the Offering but subsequently
purchased for the account of the Underwriter in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Shares at a level above that which might otherwise prevail in the
open market. None of the transactions described in this paragraph is required,
and, if they are undertaken, they may be discounted at any time.
In connection with the Offering, the Company has agreed to sell to the
Underwriter, for the par value of the underlying shares, the Underwriter's
Warrants to purchase 200,000 Shares. The Underwriter's Warrants are exercisable
for four years, commencing one year from the date of this Prospectus, at a price
per share (the "Exercise Price") equal to 110% of the public offering price per
Share. The Underwriter's Warrants may not be sold, transferred, assigned,
pledged or hypothecated for 12 months from the date of this Prospectus, except
to members of the selling group and to officers and partners of the Underwriter
or members of the selling group. The Underwriter's Warrants contain
anti-dilution provisions providing for adjustment of the Exercise Price and
number of shares issuable on exercise of the Underwriter's Warrants, upon the
occurrence of certain events, including stock dividends, stock splits and
recapitalizations. The holders of the Underwriter's Warrants have no voting,
dividend or other rights as stockholders of the Company with respect to the
shares of Common Stock underlying the Underwriter's Warrants, except to the
extent the Underwriter's Warrants shall have been exercised.
The Company has agreed that at the request of the holders of the majority of
the Underwriter's Warrants and Warrant Shares (and on no more than one
occasion), the Company will file a registration statement under the Securities
Act for an offering of the Underwriter's Warrants and the Warrant Shares during
the four-year period beginning on the first anniversary of the date of the
Prospectus, and the Company has agreed to use its best efforts to cause such
registration statement to be declared effective under the Securities Act at the
Company's expense (subject to certain limitations). In addition, the Company has
agreed to give advance notice to holders of the Underwriter's Warrants and
Warrant Shares of its intention to file a registration statement, and in one
such case, holders of the Underwriter's Warrants and the Warrant Shares will
have the right to require the Company to include the Underwriter's Warrants and
the Warrant Shares in such registration statement at the Company's expense
(subject to certain limitations).
34
<PAGE>
The Company has granted the Underwriter a right of first refusal to act as
the Company's investment banker with respect to future financings or any merger,
acquisition or disposition of assets of the Company for a period of two years
from the date of this Prospectus.
OBSERVER TO THE BOARD OF DIRECTORS
In connection with the Offering, the Company has agreed that, until the
third anniversary of the date of this Prospectus, the Underwriter may appoint an
observer to attend all meetings of the Company's Board of Directors. The
observer has the right to receive notice of all meetings of the Board of
Directors and to attend such meetings. The observer will be entitled to
reimbursement of reasonable and accountable out-of-pocket expenses for
attendance at those meetings. In addition, the observer will be entitled to
indemnification, to the same extent as the Company's independent directors.
LEGAL MATTERS
The validity of the shares of Common Stock will be passed upon by Crummy,
Del Deo, Dolan, Griffinger & Vecchione, a Professional Corporation, Newark, New
Jersey. Certain legal matters in connection with this Offering will be passed
upon for the Underwriter by Morrison Cohen Singer & Weinstein, LLP, New York,
New York.
EXPERTS
The financial statements of the Company as at March 31, 1997 and for the
period from May 3, 1995 (Inception) to March 31, 1996 and for the year ended
March 31, 1997, and the financial statements of Renaissance as at October 31,
1996 and for the year then ended, appearing in this Prospectus and Registration
Statement have been audited by Richard A. Eisner & Company, LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of Renaissance for the year ended October 31, 1995,
appearing in this Prospectus and Registration Statement have been audited by
J.H. Cohn LLP, independent public accountants, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
SB-2 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Shares offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company and
the Shares offered hereby, reference is made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to herein are not necessarily complete and, where
such contract or other document is filed as an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions in
such exhibit, to which reference is hereby made. Copies of the Registration
Statement may be inspected without charge at the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 or at the
Regional Offices of the Commission located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60604 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of all or any portion of the
Registration Statement can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of
certain fees prescribed by the Commission.
35
<PAGE>
Prior to the date of this Prospectus, the Company was not subject to the
information requirements of the Exchange Act. Upon the effectiveness of the
Registration Statement, the Company will be subject to certain of the
informational requirements of the Exchange Act and, in accordance therewith,
will file periodic reports and other information with the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of the reports and
information so filed can be obtained from the Public Reference Section of the
Commission upon payment of certain fees prescribed by the Commission.
The Commission maintains a Web site that contains reports, proxy statements
and other information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is http://www.sec.gov.
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRO FORMA:
Pro Forma Unaudited Condensed Statement of Operations for the Year Ended March 31,
1997............................................................................. F-2
HISTORICAL:
AMBASSADOR EYEWEAR GROUP, INC.
Report of Independent Auditors..................................................... F-3
Balance Sheet as at March 31, 1997................................................. F-4
Statements of Operations for the Period from May 3, 1995 (Inception) through March
31, 1996 and for the Year Ended March 31, 1997................................... F-5
Statements of Changes in Stockholders' Equity for the Period from May 3, 1995
(Inception) through March 31, 1996 and for the Year Ended March 31, 1997......... F-6
Statements of Cash Flows for the Period from May 3, 1995 (Inception) through March
31, 1996 and for the Year Ended March 31, 1997................................... F-7
Notes to Financial Statements...................................................... F-8
RENAISSANCE EYEWEAR, INC.
Report of Independent Auditors..................................................... F-20
Report of Independent Public Accountants........................................... F-21
Statement of Assets, Liabilities and Capital Deficiency Preceding the Bank Taking
Possession of the Assets......................................................... F-22
Statements of Operations Preceding the Bank Taking Possession of the Assets for the
Years Ended October 31, 1995 and October 31, 1996................................ F-23
Statements of Changes in Stockholders' Equity (Capital Deficiency) for the Years
Ended October 31, 1995 and October 31, 1996...................................... F-24
Statements of Cash Flows Preceding the Bank Taking Possession of the Assets for the
Years ended October 31, 1995 and October 31, 1996................................ F-25
Notes to Financial Statements...................................................... F-26
</TABLE>
F-1
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
PRO FORMA UNAUDITED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
The following pro forma unaudited condensed statement of operations reflects
the acquisitions of Windsor Optical, Inc. ("Windsor") and Renaissance Eyewear
Inc. ("Renaissance") as if such transactions had occurred on April 1, 1996. The
acquisitions have been accounted for as purchases in accordance with Accounting
Principles Board Opinion No. 16. In the opinion of management of the Company,
all adjustments necessary to present fairly such pro forma statements of
operations have been made.
This pro forma condensed statement of operations should be read in
conjunction with the notes thereto, the financial statements of the Company and
of Renaissance and the related notes thereto and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," each included
elsewhere in this Prospectus. The pro forma condensed statement of operations is
presented for informational purposes only and is not necessarily indicative of
what the actual results of operations would have been had the transactions
occurred at April 1, 1996, nor do they purport to indicate the results of future
operations.
The Ambassador column presents results of operations of Ambassador for the
full year ended March 31, 1997 which includes the operations of Windsor and
Renaissance from their respective dates of acquisition, June 26, 1996 and
February 26, 1997. The Windsor and Renaissance columns present respectively,
their separate unaudited results of operations for the portion of the year ended
March 31, 1997 prior to their dates of acquisition.
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------
<S> <C> <C> <C> <C> <C>
RENAISSANCE WINDSOR PRO FORMA
AMBASSADOR ELEVEN MONTHS THREE MONTHS RESULTS
YEAR ENDED ENDED ENDED YEAR ENDED
MARCH 31, FEBRUARY 28, JUNE 30, PRO FORMA MARCH 31,
1997 1997 1996 ADJUSTMENTS 1997
------------- -------------- ----------------- ----------- -----------
Net sales................................. $ 16,455 $ 11,705 $ 969 $ 29,129
Cost of sales............................. 8,482 6,060 479 15,021
------------- -------------- ----- -----------
Gross profit.............................. 7,973 5,645 490 14,108
Selling, general and administrative
expenses................................ 6,145 6,522 392 $ (332)(A) 12,727
------------- -------------- ----- ----------- -----------
Income (loss) from operations............. 1,828 (877) 98 332 1,381
Interest expense (net).................... 738 337 23 8(A) 1,106
Loss on sale of assets.................... 7,054 (7,054)(B) -0-
------------- -------------- ----- ----------- -----------
Income (loss) before taxes................ 1,090 (8,268) 75 7,378 275
Income tax expense (benefit).............. 363 (475) 25 179(A) 92
------------- -------------- ----- ----------- -----------
NET INCOME (LOSS)......................... $ 727 $ (7,793) $ 50 $ 7,199 $ 183
------------- -------------- ----- ----------- -----------
------------- -------------- ----- ----------- -----------
Earnings per share (C).................... $ .19 $ .05
------------- -----------
------------- -----------
Weighted average shares outstanding....... 3,865 3,865
------------- -----------
------------- -----------
</TABLE>
- ------------------------
Notes:
(A) Expense adjustments (for depreciation and amortization of deferred credit)
for the period ended March 31, 1997 to reflect the acquisitions as if they
had taken place April 1, 1996 and the related tax effect.
(B) Elimination of loss resulting from bank taking possession of and selling all
of the assets of Renaissance and the write down of certain trade
receivables, principally due from an affiliate.
(C) Pursuant to the Commission's Staff Accounting Bulletin common share
equivalents issued at prices below the anticipated public offering price
during the twelve months preceding the proposed initial filing date have
been included in the calculation as if they were outstanding for the entire
period presented using the treasury stock method.
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Ambassador Eyewear Group, Inc.
Philadelphia, Pennsylvania
We have audited the accompanying balance sheet of Ambassador Eyewear Group,
Inc. as at March 31, 1997 and the related statements of operations, changes in
stockholders' equity and cash flows for the period from May 3, 1995 (inception)
through March 31, 1996 and for the year ended March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the financial position of Ambassador Eyewear Group, Inc.
at March 31, 1997 and the results of its operations and its cash flows for the
period from May 3, 1995 (inception) through March 31, 1996 and for the year
ended March 31, 1997 in conformity with generally accepted accounting
principles.
Richard A. Eisner & Company, LLP
New York, New York
June 12, 1997
With respect to
Notes F and H[1]
June 30, 1997
F-3
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
BALANCE SHEET
MARCH 31, 1997
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash......................................................................... $ 75,000
Accounts receivable, less allowance for returns and doubtful accounts of
$2,394,000................................................................. 7,403,000
Inventories.................................................................. 12,038,000
Prepaid expenses............................................................. 175,000
Deferred taxes............................................................... 357,000
Other current assets......................................................... 4,000
----------
Total current assets....................................................... 20,022,000
Fixed assets, net of accumulated depreciation of $276,000...................... 744,000
Deferred financing cost........................................................ 119,000
Other assets................................................................... 42,000
----------
TOTAL.................................................................... $20,927,000
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--banks......................................................... $12,098,000
Notes payable--stockholder/officer........................................... 280,000
Current portion of long-term debt............................................ 96,000
Accounts payable............................................................. 4,242,000
Accrued expenses............................................................. 808,000
Income taxes payable......................................................... 531,000
Current portion of capital leases payable.................................... 69,000
----------
Total current liabilities.................................................. 18,124,000
Consulting payable............................................................. 29,000
Long-term debt, less current portion........................................... 319,000
Notes payable--stockholders/officer............................................ 1,181,000
Capital leases payable, less current portion................................... 90,000
Deferred taxes................................................................. 41,000
Deferred credit, net........................................................... 836,000
----------
Total liabilities.......................................................... 20,620,000
----------
Commitments, contingencies and other matters
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized 1,000,000 shares; none
issued
Common stock, par value $.01 per share; authorized 10,000,000 shares; issued
and outstanding 3,500,000 shares........................................... 35,000
Additional paid-in capital................................................... 187,000
Unearned portion of compensatory stock options............................... (184,000)
Retained earnings............................................................ 269,000
----------
Total stockholders' equity................................................. 307,000
----------
TOTAL.................................................................... $20,927,000
----------
----------
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-4
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 3, 1995
(INCEPTION)
THROUGH YEAR ENDED
MARCH 31, MARCH 31,
1996 1997
------------- -------------
<S> <C> <C>
Net sales.......................................................................... $ 11,005,000 $ 16,455,000
Cost of sales...................................................................... 6,396,000 8,482,000
------------- -------------
Gross profit....................................................................... 4,609,000 7,973,000
Selling, general and administrative expenses....................................... 4,258,000 6,145,000
------------- -------------
Income from operations............................................................. 351,000 1,828,000
Interest income.................................................................... 4,000
Interest (expense)................................................................. (474,000) (742,000)
------------- -------------
Income (loss) before provision for income taxes.................................... (123,000) 1,090,000
Income tax provision (benefit)..................................................... (61,000) 363,000
------------- -------------
NET INCOME (LOSS).................................................................. $ (62,000) $ 727,000
------------- -------------
------------- -------------
Net income (loss) per share........................................................ $ (.02) $ .19
------------- -------------
------------- -------------
Weighted average number of common shares outstanding............................... 3,865,000 3,865,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-5
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNEARNED
COMMON STOCK PORTION OF
------------------------ ADDITIONAL COMPENSATORY RETAINED TOTAL
NUMBER OF PAID-IN STOCK EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL OPTIONS (DEFICIT) EQUITY
---------- ------------ ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock................ 3,500,000 $ 35,000 $ (34,000) $ 1,000
Acquisition of Chanuk................... (362,000) (362,000)
Net loss for the period May 3, 1995
(inception) through March 31, 1996.... (62,000) (62,000)
Balance--March 31, 1996................. 3,500,000 35,000 (458,000) (423,000)
Fair value of options granted........... $ 187,000 $ (184,000) 3,000
Net income for the year................. 727,000 727,000
---------- ------------ ---------- ------------- ----------- ------------
BALANCE--MARCH 31, 1997................. 3,500,000 $ 35,000 $ 187,000 $ (184,000) $ 269,000 $ 307,000
---------- ------------ ---------- ------------- ----------- ------------
---------- ------------ ---------- ------------- ----------- ------------
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-6
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 3, 1995
(INCEPTION)
THROUGH YEAR ENDED
MARCH 31, MARCH 31,
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................... $ (62,000) $ 727,000
Adjustments to reconcile net income to net cash (used in) operating activities:
Depreciation..................................................................... 110,000 175,000
Amortization of deferred financing costs......................................... 127,000 71,000
Amortization of deferred credit.................................................. (8,000)
Deferred taxes................................................................... (179,000) 137,000
Compensatory stock option........................................................ 3,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable..................................... 57,000 (3,992,000)
(Increase) in inventories...................................................... (1,980,000) (1,434,000)
Decrease in prepaid expenses................................................... 222,000 98,000
(Increase) decrease in other assets............................................ (153,000) 173,000
Increase in accounts payable................................................... 28,000 252,000
Increase in consulting payable................................................. 29,000
Increase in accrued expenses................................................... 302,000 106,000
Increase in income taxes payable............................................... 119,000 412,000
----------- -----------
Net cash (used in) operating activities...................................... (1,365,000) (3,525,000)
----------- -----------
Cash flows from investing activities:
Fixed asset acquisitions............................................................. (199,000) (136,000)
Cash obtained through acquisitions................................................... 2,000 59,000
Deferred financing costs acquired.................................................... (127,000)
Proceeds from insurance claim........................................................ 30,000
----------- -----------
Net cash (used in) investing activities...................................... (294,000) (77,000)
----------- -----------
Cash flows from financing activities:
Net borrowings from bank--line of credit............................................. 1,667,000 3,675,000
Payments of financing costs.......................................................... (190,000)
Proceeds from stockholder/officer.................................................... 15,000 265,000
Payments of notes payable--stockholders/officer...................................... (13,000)
Payments of notes payable--Windsor................................................... (35,000)
Payments on capital leases........................................................... (48,000)
----------- -----------
Net cash provided by financing activities.................................... 1,669,000 3,667,000
----------- -----------
NET INCREASE IN CASH................................................................... 10,000 65,000
Cash--beginning of period.............................................................. -0 - 10,000
----------- -----------
CASH--END OF PERIOD.................................................................... $ 10,000 $ 75,000
----------- -----------
----------- -----------
Supplementary cash flow information:
Income taxes paid.................................................................... $ 119,000
Interest paid........................................................................ $ 300,000 629,000
Supplementary schedule of noncash investing and financing activities:
Deferred financing fee............................................................. $ 100,000
Acquisitions (see Note C)
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-7
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A)--THE COMPANY AND BASIS OF PRESENTATION:
Ambassador Eyewear Group, Inc. (the "Company", formerly Diplomat Ambassador,
Inc.), designs, markets and distributes prescription eyeglass frames and
nonprescription sunglasses to department and specialty stores, optical chains
and eyewear boutiques worldwide. On May 3, 1995 the Company was organized and on
May 10, 1995, acquired substantially all of the assets and assumed certain of
the liabilities of Chanuk Inc. ("Chanuk") and became the business successor. On
June 26, 1996 the Company acquired substantially all of the assets and assumed
certain of the liabilities of Windsor Optical, Inc. ("Windsor"). On February 26,
1997 the Company acquired from a bank substantially all of the assets of
Renaissance Eyewear Inc. and incurred certain other obligations (see Note C).
The Company imports substantially all of its frames and nonprescription
sunglasses from a limited number of international suppliers, principally in the
Far East.
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[2] INVENTORIES:
Inventories, consisting principally of eyeglass frames and sunglasses, are
stated at the lower of cost or market. Cost is determined by the first-in,
first-out method.
[3] FIXED ASSETS:
Fixed assets, including assets held under capital leases, are stated at cost
and depreciation is computed by the straight line method over the estimated
useful lives of 5 to 10 years. Leasehold improvements are stated at cost and are
amortized over the shorter of the lease term or the estimated useful lives of
the related assets.
[4] AMORTIZATION OF INTANGIBLE ASSETS:
Deferred financing costs are being amortized on a straight line basis over
the remaining term of the revolving credit facility. (See Note E[1]).
Accumulated amortization was $71,000 at March 31, 1997.
[5] DEFERRED CREDIT:
The deferred credit represents the excess value of net assets of Windsor and
Renaissance acquired over cost, which is being amortized over a period of five
years. Accumulated amortization was $11,000 at March 31, 1997.
[6] INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the liability method of accounting for income taxes. The
Company reports on a calendar year end for income tax purposes.
F-8
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
[7] REVENUE RECOGNITION:
Revenue is recognized when merchandise is shipped to customers. The Company
accrues a sales return allowance in accordance with its return policy for
estimated returns of inventory subsequent to the balance sheet date that relate
to sales prior to the balance sheet date. Estimated sales returns are provided
for and at March 31, 1997 the allowance for returns was $555,000.
[8] NET INCOME PER SHARE:
Net income per share is computed using the weighted average number of shares
outstanding during the period. The effect of outstanding options is computed, if
dilutive, using the treasury stock method. In accordance with Securities and
Exchange Commission requirements, the common shares and options issued during
the twelve-month period prior to the filing of the proposed initial public
offering at a price below the anticipated initial public offering price ($6.00
per share) have been included in the calculation as if they were outstanding for
all periods prior to the offering using the treasury stock method.
[9] CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of accounts receivable. The
Company extends credit to a substantial number of its customers and performs
ongoing credit evaluations of the customers' financial condition while requiring
no collateral.
[10] FAIR VALUES OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the Company to disclose estimated fair
values for its financial instruments. The carrying amounts reported in the
balance sheet for cash, accounts receivable, accounts payable and accrued
expenses approximate fair value because of the short maturity period of those
instruments. In addition the carrying amounts reported for notes payable
approximate fair value based on recent market rates of interest for similar
instruments.
[11] STOCK-BASED COMPENSATION:
During the year ended March 31, 1997 the Company adopted Statement of
Financial Accounting Standards Board No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The provisions of SFAS No. 123 allow companies
to either expense the estimated fair value of stock options or other awards
granted to employees or to continue to follow the intrinsic value method set
forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") but disclose the pro forma effects on net income
(loss) had the fair value of the options been expensed. The Company has elected
to continue to apply APB No.25 to its stock-based compensation awards to
employees and will disclose pro forma net income and net income per share in
accordance with SFAS No. 123. Accordingly, the Company accounts for the
difference between the exercise price of compensatory stock options and the fair
value of the stock as "Unearned Compensatory Stock Options," which the Company
charges to operations over the vesting period.
F-9
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
[12] FOREIGN CURRENCY TRANSACTIONS:
Foreign currency transaction gain and losses are recognized as incurred.
During the period from May 3, 1995 (inception) through March 31, 1996 and the
year ended March 31, 1997 gains/losses were not material.
[13] ADVERTISING:
The costs of advertising are expensed when incurred or the first time the
advertising takes place. Advertising expense for the period from May 3, 1995
(inception) through March 31, 1996 and for the year ended March 31, 1997 was
approximately $155,000 and $277,000, respectively.
[14] RECENT ACCOUNTING PRONOUNCEMENTS:
SFAS No. 128, "Earnings Per Share" ("EPS"), is effective for both interim
and annual periods ending after December 15, 1997. SFAS No. 128 supersedes APB
No. 15 and specifies the computation, presentation and disclosure requirement
for basic and diluted EPS. The Company has determined that the adoption of this
new standard will not have a material effect on EPS for all periods presented.
(NOTE C)--ACQUISITIONS:
[1] ACQUISITION OF CHANUK:
In May 1995 the Company acquired substantially all of the assets and assumed
certain of the liabilities of Chanuk, an eyewear distributor and a predecessor
entity. The majority stockholder (90 percent) of Chanuk is the mother-in-law of
one of the Company's 50% stockholders. The Company's other 50% stockholder owned
a minority interest (approximately 10%) in Chanuk. The Company became the
business successor to Chanuk and the transaction is considered a
recapitalization rather than a business combination. The acquisition was
recorded at Chanuk's historical cost basis which approximates fair value. The
Company issued two notes payable aggregating $687,000, for the value of the net
assets acquired, to its two stockholders as consideration for a note issued by
the stockholders to Chanuk for the same amount (see Note F). The cost was
recorded as follows:
<TABLE>
<S> <C>
Cash............................................................ $ 2,000
Accounts receivable, net........................................ 2,089,000
Inventory....................................................... 2,995,000
Prepaid expenses & other assets................................. 442,000
Fixed assets.................................................... 468,000
Note payable--bank.............................................. (2,288,000)
Accounts payable................................................ (2,875,000)
Loans payable--stockholders..................................... (508,000)
Deficit......................................................... 362,000
----------
Notes payable--stockholders..................................... $ 687,000
----------
----------
</TABLE>
F-10
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE C)--ACQUISITIONS: (CONTINUED)
[2] ACQUISITION OF WINDSOR:
In June 1996 the Company acquired substantially all of the assets and
assumed certain of the liabilities of Windsor, an eyewear distributor. In
addition, the Company issued two notes payable to Windsor aggregating $450,000.
This acquisition was treated for accounting purposes as a purchase. Accordingly,
the various assets acquired and liabilities assumed were recorded at their
respective estimated fair values as of the date of acquisition. The cost of the
acquisition was allocated as follows:
<TABLE>
<S> <C>
Cash............................................................ $ 59,000
Accounts receivable, net........................................ 448,000
Inventory....................................................... 1,937,000
Fixed assets.................................................... 45,000
Other assets.................................................... 66,000
Loan payable--bank.............................................. (1,022,000)
Accounts payable................................................ (1,083,000)
----------
Notes payable--Windsor.......................................... $ 450,000
----------
----------
</TABLE>
The Company entered into a three year employment agreement with one of the
principal stockholders of Windsor, who is currently an officer of the Company
(see Note K[2]). The Company also granted options to purchase 151,667 shares of
common stock at $1.50 per share to this individual. In addition the Company
entered into a consulting agreement with another principal stockholder of
Windsor (see Note K[3]).
[3] ACQUISITION OF THE ASSETS OF RENAISSANCE:
In February 1997 the Company purchased substantially all of the assets of
Renaissance, an eyewear distributor, from Summit Bank after Summit Bank had
passively foreclosed on Renaissance upon default of its loan agreement. The
Company also satisfied certain obligations aggregating $400,000 and entered into
a noncompete agreement and a consulting agreement with the former owner of
Renaissance which provide for annual aggregate payments of $200,000 per year for
five years (see Note K[3]). In addition the Company granted the former owner
options to purchase 180,833 shares of common stock at $3 per share. The Company
valued the option at $187,000 representing the fair value at date of grant which
is being charged to operations over five years. The excess of the fair value of
the net assets acquired over the purchase price was first applied as a reduction
of noncurrent assets and the remaining balance is treated for accounting
purposes as a deferred credit. The cost of the acquisition was allocated as
follows:
<TABLE>
<S> <C>
Accounts receivable, net........................................ $ 975,000
Inventory....................................................... 3,662,000
Prepaid expenses................................................ 53,000
Note payable--bank.............................................. (3,446,000)
Deferred credit................................................. (844,000)
Accrued expenses................................................ (400,000)
</TABLE>
The Company's financial statements include the operations of the acquired
entities from the respective dates of such acquisitions.
F-11
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE C)--ACQUISITIONS: (CONTINUED)
[4] PRO FORMA RESULTS OF OPERATIONS:
The following unaudited pro forma summary of results of operations has been
prepared as if each of the acquisitions had occurred on May 3, 1995 (inception)
and giving effect to all adjustments including the elimination of nonrecurring
items:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 3, 1995
(INCEPTION) YEAR ENDED
TO MARCH 31, MARCH 31,
PRO FORMA 1996 1997
- --------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Net revenue.................................................... $ 28,338,000 $ 29,119,000
Net income (loss).............................................. (53,000) 159,000
Net income (loss) per share.................................... $ (.01) $ .04
</TABLE>
The pro forma results do not purport to be indicative of the results that
would have actually been achieved if the respective acquisitions had taken place
as of May 3, 1995 (inception) or of results which may occur in the future.
(NOTE D)--FIXED ASSETS:
Fixed assets at March 31, 1997 are summarized as follows:
<TABLE>
<S> <C>
Furniture, fixtures and displays.................................. $ 232,000
Equipment......................................................... 636,000
Leasehold improvements............................................ 152,000
---------
Total......................................................... 1,022,000
Accumulated depreciation.......................................... 276,000
---------
Balance....................................................... $ 744,000
---------
---------
</TABLE>
(NOTE E)--BANK LOANS AND LONG-TERM DEBT:
[1] BANK LOANS:
The Company has entered into a revolving line of credit agreement with a
bank which expires annually on June 1, is automatically renewed for one year and
provides for borrowings of up to a maximum of $12,000,000 based on specified
percentages, described in the agreement, of eligible accounts receivable and
inventories. Borrowings under the agreement bear interest at the prime rate
(8.5% at March 31, 1997). The credit facility is collateralized by substantially
all of the assets of the Company. $1,500,000 under the revolving line of credit
is guaranteed by the stockholders/officers of the Company. At March 31, 1997
$11,998,000 was outstanding under the credit facility.
Upon the closing of the Company's anticipated initial public offering, a fee
of $100,000 will be due to the bank. This fee was recorded as a deferred
financing cost and is being amortized over the remaining term of the credit
facility.
F-12
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE E)--BANK LOANS AND LONG-TERM DEBT: (CONTINUED)
[2] LONG-TERM DEBT:
Long-term debt at March 31, 1997 consists of the following:
<TABLE>
<S> <C>
Notes payable--Windsor(a)......................................... $ 415,000
Less amounts due within one year.................................. 96,000
---------
Amounts due after one year........................................ $ 319,000
---------
---------
</TABLE>
(a) In connection with the acquisition of Windsor in June 1996, the Company
issued two notes aggregating $450,000 to Windsor which bear interest at the rate
of 7% per annum. The notes are payable in aggregate monthly installments of
principal and interest of approximately $10,000 through January 2000 and
approximately $5,000 thereafter through July 2003.
Long-term debt is payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
- ----------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 96,000
1999.............................................................................. 103,000
2000.............................................................................. 58,000
2001.............................................................................. 45,000
2002.............................................................................. 48,000
Thereafter........................................................................ 65,000
----------
TOTAL......................................................................... $ 415,000
----------
----------
</TABLE>
(NOTE F)--NOTES PAYABLE--STOCKHOLDERS/OFFICER:
In connection with the acquisition of Chanuk in May 1995 the Company assumed
a note payable to a stockholder/officer of the Company in the amount of
$508,000. The note bears interest at the rate of 8% per annum and is payable on
demand. At March 31, 1997 balance due on the note was $495,000.
Two stockholders/officers personally satisfied a portion of the purchase
price and the Company issued notes payable of $343,000 to each of the officers
for such amounts. The notes payable bear interest at a rate of 8% per annum and
are due on demand but no later than January 1, 2000 and are subordinate to the
bank debt. At March 31, 1997 the balance on these notes aggregated $686,000.
The foregoing demand notes are subject to an agreement entered into by the
Company as of June 30, 1997 to convert principal balances outstanding into
redeemable cumulative preferred stock on the effective date of the initial
public offering. Accordingly, the notes have been classified as long-term at
March 31, 1997.
In February 1997, a stockholder/officer loaned the Company $280,000 in
connection with the acquisition of substantially all of the assets of
Renaissance. The loan is payable on demand and bears interest at the rate of 8%
per annum.
F-13
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE G)--CAPITAL LEASES PAYABLE:
The Company leases equipment under various agreements with terms of 32 to 60
months and accounts for these leases as capital leases. Equipment purchases
under these leases for the period from May 3, 1995 (inception) through March 31,
1996 and for the year ended March 31, 1997 were $189,000 and $51,000,
respectively. The net book value of equipment held under capital leases was
approximately $183,000 at March 31, 1997.
Future lease payments as of March 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
- ----------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 91,000
1999.............................................................................. 69,000
2000.............................................................................. 29,000
2001.............................................................................. 5,000
----------
Total......................................................................... 194,000
Less amounts representing interest................................................ 35,000
----------
Present value of future lease payments............................................ 159,000
Less amount due within one year................................................... 69,000
----------
Amounts due after one year........................................................ $ 90,000
----------
----------
</TABLE>
F-14
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE H)--STOCKHOLDERS' EQUITY:
[1] COMMON STOCK:
In May 1995 the Company issued 1,500 shares of its common stock to each of
its two stockholders, both of whom are officers of the Company.
In June 1997 the Company effected a 1,166.67 for 1 stock split. The
financial statements give retroactive effect to this transaction as if it
occurred on May 3, 1995 (inception).
In June 1997 the Company amended its certificate of incorporation to
increase the authorized capital stock to 11,000,000 of which 10,000,000 are
common stock and 1,000,000 preferred stock. The accompanying financial
statements reflect this increase retroactively.
[2] STOCK OPTIONS:
The Company applies APB 25 in accounting for stock-based compensation to
employees and, accordingly, recognizes compensation expense for the difference
between the fair value of the underlying common stock and the exercise price of
the option and warrant at the date of grant. The effect of applying SFAS No. 123
on fiscal 1996 and 1997 pro forma net income is not necessarily representative
of the effects on reported net loss for future years due to, among other things,
(1) the vesting period of the stock options and (2) the fair value of additional
stock options that may be granted in future years. Had compensation cost for the
Company's stock options granted to employees been determined based upon the fair
value at the grant date consistent with the methodology prescribed under SFAS
No. 123, the Company's net income (loss) and net income (loss) per share would
have been approximately (i) $(65,000) and $(.02) for the period May 3, 1995
(inception) through March 31, 1996 and (ii) $708,000 and $.18 for the year ended
March 31, 1997. The weighted average fair value of the options granted during
fiscal 1996 and 1997 are estimated at $.09 and $.80, respectively, on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0%, volatility of 30%, risk-free interest rate of
6.74%, and expected life of four to five years.
[3] OTHER STOCK OPTIONS: THE FOLLOWING TABLE SUMMARIZED INFORMATION ABOUT
STOCK OPTIONS OUTSTANDING AT MARCH 31, 1997 (ALL EXERCISABLE):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE AVERAGE
EXERCISE NUMBER REMAINING CONTRACTUAL EXERCISE
PRICE OUTSTANDING LIFE (IN YEARS) PRICE
- -------------------------------------- ----------- ------------------------- -----------
<S> <C> <C> <C>
$ .25................................. 166,833 4 $ .25
1.50................................. 151,667 3 1.50
3.00................................. 180,833 5 3.00
-----------
Total................................. 499,333 1.63
-----------
-----------
</TABLE>
F-15
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE I)--PROPOSED PUBLIC OFFERING:
The Company has signed a letter of intent with an underwriter with respect
to a proposed public offering of the Company's securities. There is no assurance
that such offering will be consummated. In connection therewith, the Company
anticipates incurring substantial costs, which, if the offering is not
consummated, will be charged to expense.
(NOTE J)--INCOME TAXES:
The provisions for federal and state income taxes for the period from May 3,
1995 (inception) through March 31, 1996 and for the year ended March 31, 1997
are comprised of the following:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 3, 1995
(INCEPTION)
THROUGH YEAR ENDED
MARCH 31, MARCH 31,
1996 1997
----------- -----------
<S> <C> <C>
Current:
Federal........................................................... $ 75,000 $ 196,000
State............................................................. 43,000 40,000
----------- -----------
118,000 236,000
----------- -----------
Deferred:
Federal........................................................... (115,000) $ 105,000
State............................................................. (64,000) 22,000
----------- -----------
(179,000) 127,000
----------- -----------
Total....................................................... $ (61,000) $ 363,000
----------- -----------
----------- -----------
</TABLE>
The deferred tax asset of $357,000 and liability of $41,000 at March 31,
1997 represent the anticipated future tax consequences attributable to temporary
differences between the basis of assets and liabilities for financial and tax
reporting purposes and consists of the following components:
<TABLE>
<CAPTION>
CURRENT NONCURRENT
---------- -----------
<S> <C> <C>
Accounts receivable................................................. $ 248,000
Inventory valuation................................................. 58,000
Depreciation........................................................ $ (41,000)
Accounts payable.................................................... 12,000
Other............................................................... 39,000
---------- -----------
Total....................................................... $ 357,000 $ (41,000)
---------- -----------
---------- -----------
</TABLE>
F-16
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE J)--INCOME TAXES: (CONTINUED)
Expected tax expense based on the statutory rate is reconciled with actual
tax expense as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 3, 1995
(INCEPTION)
THROUGH YEAR ENDED
MARCH 31, MARCH 31,
1996 1997
--------------- -------------
<S> <C> <C>
Federal statutory rate.............................................. 34.0% 34.0%
State income tax, net of federal benefit............................ 17.1% 11.9%
Non-deductible expenses............................................. (1.5)% (12.9 )%
--- -----
Effective tax rate.................................................. 49.6 % 33.0%
--- -----
--- -----
</TABLE>
(NOTE K)--COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
[1] OPERATING LEASES:
The Company currently leases office, warehouse, showroom facilities and
equipment under operating leases, which expire at various times through 2002.
Future minimum lease payments under noncancelable leases at March 31, 1997
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
- ----------------------------------------------------------------------------------
<S> <C>
1998........................................................................ $ 231,000
1999........................................................................ 150,000
2000........................................................................ 150,000
2001........................................................................ 47,000
2002........................................................................ 13,000
Thereafter.................................................................. 3,000
----------
Total................................................................... $ 594,000
----------
----------
</TABLE>
Rent expense for the period from May 3, 1995 (inception) through March 31,
1996 and for the year ended March 31, 1997 was approximately $76,000 and
$140,000, respectively.
[2] EMPLOYMENT AGREEMENTS:
The Company has entered into an employment agreement with the
President/Chief Executive Officer which provides for an annual salary of
$175,000. The agreement shall continue so long as the President remains a
stockholder of the Company, unless the agreement is terminated as defined in the
agreement.
F-17
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE K)--COMMITMENTS, CONTINGENCIES AND OTHER MATTERS: (CONTINUED)
[2] EMPLOYMENT AGREEMENTS: (CONTINUED)
The Company has an employment agreement with one of the principal
stockholders of Windsor. The employment agreement provides for a minimum bonus
of 5% of the bonuses granted to the principal stockholders of the Company and
annual base salary as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
- ----------------------------------------------------------------------------------
<S> <C>
1998........................................................................ $ 111,250
1999........................................................................ 116,250
2000........................................................................ 90,000
----------
$ 317,500
----------
----------
</TABLE>
[3] CONSULTING AND NONCOMPETE AGREEMENTS:
The Company has entered into an agreement with an affiliate of one of the
officers/stockholders to provide consulting, advisory and other supportive
services for an annual fee of $208,000. In March 1997 the agreement was orally
amended to increase payments to $5,000 per week. The agreement shall continue as
long as the officer remains a stockholder of the Company, unless the agreement
is terminated as defined in the agreement.
In May 1995 the Company entered into a ten year consulting agreement with
Chanuk to provide consulting, advisory and support services for $500 per week.
In addition, the Company entered into a ten year agreement with an affiliate of
a stockholder to provide consulting advisory and support services for $500 per
week.
In connection with the acquisition of Renaissance the Company entered into a
noncompete agreement and consulting agreement with the former stockholder of
Renaissance which provide for annual aggregate payments of $200,000 per year
through February 2002.
In addition the Company has entered into a three year consulting agreement
commencing June 1996 with a principal stockholder of Windsor which provides for
36 monthly payments of $6,944 commencing June 2004. The Company has present
valued the payments and has recorded an expense of approximately $29,000 and a
corresponding liability for the year ended March 31, 1997.
[4] MAJOR CUSTOMER:
One major customer accounted for approximately 51% and 35% of net sales for
the period May 3, 1995 (inception) through March 31, 1996 and for the year ended
March 31, 1997, respectively.
F-18
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE K)--COMMITMENTS, CONTINGENCIES AND OTHER MATTERS: (CONTINUED)
[5] ROYALTY AND LICENSING AGREEMENTS:
The Company has entered into various license agreements which provide for
the payment of royalties ranging from 6% to 8% of net selling price of products
sold, as defined.
The Company is obligated under these agreements to make future minimum
payments as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
- --------------------------------------------------------------------------------
<S> <C>
1998...................................................................... $ 944,000
1999...................................................................... 528,000
2000...................................................................... 269,000
2001...................................................................... 97,000
------------
Total................................................................. $ 1,838,000
------------
------------
</TABLE>
[6] LETTERS OF CREDIT:
At March 31, 1997 the Company had outstanding irrevocable letters of credit
in the amount of $52,000.
[7] SUCCESSOR LIABILITIES:
In connection with the acquisition of all of the assets of Renaissance in
February 1997 no liabilities of Renaissance were assumed by the Company. To the
extent that any creditors of Renaissance seek recourse against the Company as
the purchaser of substantially all of the asssets of Renaissance, the Company
may incur substantial expenses in connection with defending any such actions.
Additionally, to the extent that creditors are successful on asserting any
claims against the Company as successor to Renaissance, the Company would be
required to charge its operations.
F-19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Renaissance Eyewear, Inc.
Cranford, NJ
We have audited the accompanying statement of assets, liabilities and
capital deficiency of Renaissance Eyewear, Inc. (the "Company") as at October
31, 1996 and the related statements of operations, changes in capital deficiency
and cash flows all preceding the bank taking possession of the assets (Note A)
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the financial position of Renaissance Eyewear, Inc. at
October 31, 1996 and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
As discussed in Notes A and K to the financial statements, the Company
defaulted on its bank loan. In February 1997, the bank took possession of all of
the Company's assets.
Richard A. Eisner & Company LLP
New York, New York
June 12, 1997
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Renaissance Eyewear, Inc.
We have audited the accompanying combined statements of operations, changes
in stockholders' equity and cash flows of Renaissance Eyewear, Inc. and
Affiliate for the year ended October 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 combined financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Renaissance Eyewear, Inc. and Affiliate for the year ended October 31,
1995, in conformity with generally accepted accounting principles.
/s/ J. H. COHN LLP
--------------------------------------
J. H. Cohn LLP
Roseland, New Jersey
December 22, 1995
F-21
<PAGE>
RENAISSANCE EYEWEAR, INC.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL DEFICIENCY
PRECEDING THE BANK TAKING POSSESSION OF THE ASSETS
(NOTE A)
AS AT OCTOBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 8,000
Accounts receivable, net of allowance for returns and doubtful accounts of
$967,000.................................................................... 2,268,000
Other receivables............................................................. 87,000
Inventories................................................................... 3,705,000
Prepaid expenses.............................................................. 90,000
----------
Total current assets...................................................... 6,158,000
Other assets.................................................................... 273,000
----------
TOTAL..................................................................... $6,431,000
----------
----------
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Loan payable--bank............................................................ $2,663,000
Long-term debt................................................................ 638,000
Accounts payable and accrued expenses......................................... 3,597,000
Bank acceptances payable...................................................... 219,000
Due to related party.......................................................... 180,000
----------
Total current liabilities................................................. 7,297,000
----------
Commitments and contingencies
Capital deficiency:
Preferred stock, $1,000 par value, nonvoting; 5,000 shares authorized;
1,970.915 shares issued..................................................... 1,971,000
Common stock, no par value; 15,000 shares authorized, issued and
outstanding................................................................. 81,000
Additional paid-in capital.................................................... 2,124,000
(Accumulated deficit)......................................................... (4,844,000)
Treasury stock, 198 shares of preferred stock at cost......................... (198,000)
----------
Total capital deficiency.................................................. (866,000)
----------
TOTAL..................................................................... $6,431,000
----------
----------
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-22
<PAGE>
RENAISSANCE EYEWEAR, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
PRECEDING THE BANK TAKING POSSESSION OF THE ASSETS
(NOTE A)
<TABLE>
<CAPTION>
PROFESSIONAL
RENAISSANCE EYEWEAR, INC. TECHNOLOGY
------------------------------------ CONSULTANTS ADDITIONAL RETAINED
PREFERRED COMMON TREASURY COMMON PAID-IN EARNINGS
STOCK STOCK STOCK STOCK CAPITAL (DEFICIT) TOTAL
------------ --------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--November 1, 1994... $ 1,971,000 $ 81,000 $ (167,000) $ 1,000 $ 2,124,000 $ 977,000 $ 4,987,000
Purchase of treasury
stock..................... -- -- (15,000) -- -- -- (15,000)
Dissolution of affiliate.... -- -- -- (1,000) -- 1,000 -0 -
Net loss.................... -- -- -- -- -- (187,000) (187,000)
------------ --------- ----------- ----------- ------------ ------------- -------------
Balance--October 31, 1995... 1,971,000 81,000 (182,000) -0 - 2,124,000 791,000 4,785,000
Purchase of treasury
stock..................... -- -- (16,000) -- -- -- (16,000)
Net loss.................... -- -- -- -- -- (5,635,000) (5,635,000)
------------ --------- ----------- ----------- ------------ ------------- -------------
BALANCE-- OCTOBER 31, 1996.. $ 1,971,000 $ 81,000 $ (198,000) $ -0 - $ 2,124,000 $ (4,844,000) $ (866,000)
------------ --------- ----------- ----------- ------------ ------------- -------------
------------ --------- ----------- ----------- ------------ ------------- -------------
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-24
<PAGE>
RENAISSANCE EYEWEAR, INC.
STATEMENTS OF CASH FLOWS
PRECEDING THE BANK TAKING POSSESSION OF THE ASSETS
(NOTE A)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
----------------------------
<S> <C> <C>
1996 1995
------------- -------------
Cash flows from operating activities:
Net loss.......................................................................... $ (5,635,000) $ (187,000)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization................................................. 216,000 241,000
Provision for bad debts....................................................... 770,000 239,000
Write off of affiliate receivable............................................. 2,810,000
Loss on impairment of fixed assets............................................ 876,000
Gain on sale of fixed assets.................................................. (72,000)
Deferred income taxes......................................................... 134,000 (120,000)
Changes in operating assets and liabilities:
Accounts receivable......................................................... 1,068,000 (980,000)
Inventories................................................................. 809,000 (22,000)
Prepaid expenses and other current assets................................... 273,000 230,000
Due from related parties.................................................... (486,000) (381,000)
Other assets................................................................ 3,000 (2,000)
Bank acceptances payable.................................................... (99,000)
Accounts payable and accrued expenses....................................... 641,000 940,000
Income taxes payable........................................................ (150,000) (195,000)
------------- -------------
Net cash provided by (used in) operating activities....................... 1,257,000 (336,000)
------------- -------------
Cash flows from investing activities:
Proceeds from sale of fixed assets................................................ 72,000
Capital expenditures.............................................................. (5,000) (26,000)
------------- -------------
Net cash provided by (used in) investing activities....................... 67,000 (26,000)
------------- -------------
Cash flows from financing activities:
Net (payments) proceeds under line of credit agreement............................ (457,000) 943,000
Proceeds of long-term debt........................................................ 1,250,000
Payments of long-term debt........................................................ (853,000) (1,824,000)
Purchase of preferred stock for treasury.......................................... (16,000) (15,000)
------------- -------------
Net cash (used in) provided by financing activities....................... (1,326,000) 354,000
------------- -------------
NET DECREASE IN CASH................................................................ (2,000) (8,000)
Cash--beginning of year............................................................. 10,000 18,000
------------- -------------
CASH--END OF YEAR................................................................... $ 8,000 $ 10,000
------------- -------------
------------- -------------
Supplementary disclosures of cash flow information:
Interest paid................................................................... $ 442,000 $ 495,000
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-25
<PAGE>
RENAISSANCE EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A)--THE COMPANY:
Renaissance Eyewear, Inc. (the "Company") markets and distributes
prescription eyeglass frames and nonprescription sunglasses to department and
specialty stores, optical chains and eyewear boutiques worldwide.
In February 1997, the Company defaulted on its credit facility and the bank
took possession of all of the Company's assets, which were acquired from the
bank by a third party, Ambassador Eyewear Group, Inc. ("Ambassador"). In
connection therewith, Ambassador paid off the remaining balance due under bank's
credit facility. As a result, the Company has no assets remaining with which to
pay its creditors (see Note K). The Company's current operations are limited to
leasing its employees to and being reimbursed for expenses by Ambassador.
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] Concentrations of credit risk:
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and trade accounts receivable. The
Company maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. Concentrations of credit risk with respect to trade
receivables, other than trade receivables from an affiliate, are limited due to
the large number of customers comprising the Company's customer base and their
dispersion across different geographic areas. In addition, the Company routinely
assesses the financial strength of its customers.
[2] Inventories:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
[3] Depreciation and amortization:
Provision is made for depreciation and amortization of equipment and
improvements principally on the straight-line method over the estimated useful
lives of the related assets as follows:
<TABLE>
<CAPTION>
RANGE OF
ESTIMATED
CATEGORY USEFUL LIVES
- -------------------------------------------------------------------------------- ------------
<S> <C>
Machinery and equipment......................................................... 5-10 years
Furniture and fixtures.......................................................... 5-10 years
Vehicles........................................................................ 3 years
Leasehold improvements.......................................................... 3-15 years
</TABLE>
[4] Advertising:
The Company expenses the cost of advertising and promotions as incurred.
Advertising costs charged to operations amounted to $397,000 and $550,000 in
1996 and 1995, respectively.
[5] Reclassifications:
Certain accounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
F-26
<PAGE>
RENAISSANCE EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
[6] Income taxes:
The Company applies Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes", which requires deferred income tax assets
and liabilities to be computed for differences between the financial statement
and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
[7] Long lived assets:
The Company has adopted the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" in
1996. SFAS 121 requires impairment losses to be recorded on long-lived assets
(i.e. property and equipment and patent and trademarks) used in operations when
impairment indicators are present and undiscounted cash flows estimated to be
generated by those assets are less than the asset's carrying amount. Based on
current circumstances, the adoption of SFAS 121 has a material effect on the
Company's financial statements for the year ended October 31, 1996.
[8] Use of estimates in the preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(NOTE C)--INVENTORIES:
Inventories consist of the following at October 31, 1996:
<TABLE>
<S> <C>
Raw material.................................................... $ 99,000
Work in process................................................. 37,000
Finished goods.................................................. 3,569,000
---------
Total..................................................... $3,705,000
---------
---------
</TABLE>
(NOTE D)--NOTE PAYABLE--BANK:
At October 31, 1996, the Company has a $5,295,000 credit facility with a
bank which, in addition to the term loans discussed in Note E, provides for a
revolving line of credit. Borrowings under the facility bear interest at rates
ranging from 1% to 1 3/4% over the prime rate, are collateralized by
substantially all of the Company's assets and are personally guaranteed by the
principal stockholder. Subsequent to October 31, 1996 the Company defaulted on
this credit facility (see Notes A and K).
F-27
<PAGE>
RENAISSANCE EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE E)--LONG-TERM DEBT:
Long-term debt consists of the following at October 31, 1996:
<TABLE>
<S> <C>
Bank term loans (see Note D):
Payable in monthly installments of $35,000 plus
interest through January 31, 1997........................... $ 535,000
Payable in monthly installments of $4,416 plus
interest through January 31, 1997........................... 53,000
Payable in monthly installments of $4,167 plus
interest through January 31, 1997........................... 17,000
Mortgage--payable in monthly installments through July 2006 with
interest at 9%. Secured by a condominium held for sale (included
in other assets) with a book value of $65,323................... 33,000
---------
Current maturities................................................ $ 638,000
---------
---------
</TABLE>
The minimum payment on notes required to be made through October 31, 1997 is
approximately $605,000.
An investment in real estate, which acted as security on the mortgage was
sold in January 1997 and the remaining debt was paid off at that time.
Therefore, the amount due during the year ending October 31, 1997 only includes
payments on the mortgage through the date of the sale.
(NOTE F)--INCOME TAXES:
The income tax (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
--------------------------
<S> <C> <C>
1996 1995
------------- -----------
Current:
Federal....................................................... $ (1,635,000) $ (270,000)
State......................................................... (192,000)
------------- -----------
(1,827,000) (270,000)
------------- -----------
Deferred:
Federal....................................................... 1,601,000 (92,000)
State......................................................... 207,000 (27,000)
------------- -----------
1,808,000 (119,000)
------------- -----------
Total....................................................... $ (19,000) $ (389,000)
------------- -----------
------------- -----------
</TABLE>
At October 31, 1996 the Company has available net operating loss
carryforwards to reduce future federal and state taxable income of approximately
$6,246,000 and $7,812,000, respectively, which expire in various amounts through
2011.
Deferred tax assets result primarily from allowances for bad debts that are
not deductible for tax purposes until losses are identified and written off,
certain costs which are capitalized to inventory for tax
F-28
<PAGE>
RENAISSANCE EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE F)--INCOME TAXES: (CONTINUED)
purposes and become deductible when the inventory is sold and federal and state
net operating loss carryforwards ("NOL's"). Deferred tax liabilities result from
certain expense items (primarily rent) being treated differently for financial
and tax reporting purposes. A valuation allowance which increased by
approximately $2,253,000 during the year ended October 31, 1996, has been
established for the full amount of the deferred tax assets which would otherwise
have been recorded due to management's uncertainty regarding the Company's
ability to generate taxable income in future periods. The Company's deferred tax
assets (liabilities) at October 31, 1996 consist of the following:
<TABLE>
<CAPTION>
CURRENT NONCURRENT TOTAL
----------- ------------ -------------
<S> <C> <C> <C>
Allowance for bad debts............................. $ 372,000 $ 372,000
Inventory capitalized............................... 120,000 120,000
Depreciation........................................ $ 108,000 108,000
NOL's............................................... 2,468,000 2,468,000
Other............................................... (100,000) (100,000)
----------- ------------ -------------
$ 392,000 $ 2,576,000 2,968,000
----------- ------------
----------- ------------
Valuation allowance................................. (2,968,000)
-------------
$ -0 -
-------------
-------------
</TABLE>
The difference between the statutory federal income tax rate and the
effective income tax rate based on net loss before taxes stated in the statement
of operations for the year ended October 31, 1996 is due to (i) state income tax
benefit net of federal expense, (ii) an income tax refund and (iii) an increase
in the valuation allowance on deferred tax assets.
(NOTE G)--PREFERRED STOCK:
The Company's cumulative preferred stock has a minimum dividend rate of 9%
and a maximum rate of 16%. Dividends of approximately $2,069,000 were in arrears
on the preferred stock at October 31, 1996. These dividends are payable in cash
or by the issuance of additional shares of preferred stock having a par value
equal to the amount of the dividends declared. Such dividends are payable at the
sole discretion of the Board of Directors or upon the liquidation of the
Company.
(NOTE H)--BENEFIT PLANS:
[1] Profit sharing plan:
Prior to June 30, 1995, the Company maintained a qualified employee stock
ownership plan ("ESOP") covering all eligible salaried and hourly employees.
Annual contributions were determined by the Board of Directors and made in the
form of the Company's preferred stock. No contribution was made during 1996 and
1995.
Upon an employee's death or retirement at age 65, the Company is required to
redeem, at par value, all of the shares of preferred stock previously issued to
the employee. During 1996 and 1995, 15.79 and 15.08 shares of preferred stock,
respectively, were redeemed by the Company and are being held in the treasury.
F-29
<PAGE>
RENAISSANCE EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE H)--BENEFIT PLANS: (CONTINUED)
Effective July 1, 1995, the Board of Directors approved the restatement of
the ESOP to a profit sharing plan. Annual contributions by the Company are made
at the discretion of the Board of Directors. No contributions were made during
fiscal 1996.
[2] 401(k) plan:
The Company has a 401(k) plan for the benefit of substantially all
employees. Annual contributions are made at the discretion of the Board of
Directors. The Company did not make a contribution to the 401(k) plan for the
years ended October 31, 1996 and October 31, 1995.
(NOTE I)--RELATED PARTY TRANSACTIONS:
Transactions with a Canadian entity, which is 50% owned by the principal
stockholder of the Company, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Sales to.............................................................. $ 248,000 $ 449,000
Management fees charged to............................................ 75,000 75,000
</TABLE>
At October 31, 1996 and October 31, 1995, amounts due related party consist
of a note payable to the wife of the principal stockholder, which was originally
due on demand, but has been subordinated to the bank debt described in Notes D
and E. Interest on the note (9% per annum) amounted to $16,000 in 1996 and 1995.
In addition, the Company leases various facilities from its sole stockholder
(see Note J).
(NOTE J)--COMMITMENTS AND CONTINGENCIES:
[1] Leases:
The Company leases various office facilities from the sole stockholder under
noncancelable operating leases expiring through 2004. Rent expense amounted to
approximately $249,000 in both 1996 and 1995.
The Company also leased a showroom under a noncancelable operating lease
which expired in July 1996. The Company entered into a new showroom lease
effective July 1996. This lease expires in July 1999. Rent expense amounted to
approximately $24,000 and $25,000 in 1996 and 1995, respectively.
F-30
<PAGE>
RENAISSANCE EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE J)--COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Minimum future lease payments under noncancelable operating leases in years
subsequent to October 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING PRINCIPAL NEW YORK
OCTOBER 31, STOCKHOLDER SHOWROOM TOTAL
- ------------------------------------------------------ ------------ ----------- ------------
<S> <C> <C> <C>
1997.................................................. $ 177,000 $ 11,000 $ 188,000
1988.................................................. 231,000 21,000 252,000
1999.................................................. 223,000 16,000 239,000
2000.................................................. 215,000 215,000
2001.................................................. 207,000 207,000
Thereafter............................................ 537,000 537,000
------------ ----------- ------------
Total........................................... $ 1,590,000 $ 48,000 $ 1,638,000
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
The future minimum lease payments have been adjusted to reflect Ambassador's
assumption of various operating leases effective March 1, 1997.
[2] Royalties:
The Company has entered into various royalty agreements with licensers,
expiring through 1998, which require royalty payments based on sales volume.
Royalties charged to operations amounted to $530,000 and $644,000 in 1996 and
1995, respectively. The minimum royalty payment due under these agreements in
the year ending October 31, 1997 is $100,000.
The minimum royalty payment disclosed above has been adjusted to reflect
payments due through February 28, 1997. Subsequent to this date, Ambassador will
continue to make payments on any continuing license agreements.
[3] Letters of credit:
At October 31, 1996, the Company is contingently liable for letters of
credit aggregating $80,000 to be used for future inventory purchases.
(NOTE K)--SUBSEQUENT EVENTS:
As described in Note A, in February 1997 the Company defaulted on its bank
loan and the bank seized all of the Company's assets, which were acquired from
the bank by Ambassador, who paid off the remaining balance of the bank loan.
The following proforma unaudited summary financial information gives effect
to the bank taking possession of the Company's assets as if it had occurred on
October 31, 1996:
<TABLE>
<S> <C>
Total assets.................................................... $ -0 -
----------
----------
Total liabilities............................................... $4,634,000
Capital deficiency.............................................. (4,634,000)
----------
Total liabilities and capital deficiency........................ $ -0 -
----------
----------
</TABLE>
F-31
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY
SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON ASKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 4
Use of Proceeds................................. 10
Dividend Policy................................. 11
Capitalization.................................. 12
Dilution........................................ 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 14
Business........................................ 18
Management...................................... 25
Certain Relationships and Related Party
Transactions.................................. 29
Principal Stockholders.......................... 30
Description of Securities....................... 31
Shares Eligible for Future Sale................. 32
Underwriting.................................... 33
Legal Matters................................... 35
Experts......................................... 35
Available Information........................... 35
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
AFFECTING TRANSACTIONS IN THE SHARES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,000,000 SHARES
AMBASSADOR EYEWEAR
GROUP, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
HAMPSHIRE SECURITIES
CORPORATION
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL grants corporations the power to indemnify
directors, officers, employees and agents in accordance with the provisions
thereof. Article 17 of the Registrant's By-Laws provides, in effect, that the
Registrant shall indemnify any and all of its directors and officers to the
fullest extent permitted by the DGCL, as the same may be amended. The
indemnification so provided is expressly not exclusive of any other rights to
which those seeking indemnification may be entitled and shall inure to the
benefit of the heirs, executors and administrators of such persons.
Section 102(b)(7) of the DGCL grants corporations the power to eliminate a
director's personal liability for monetary damages to the corporation or its
stockholders for breach of fiduciary duty as a director, except in circumstances
involving a breach of director's duty to loyalty to the corporation or its
stockholders, acts or omissions not in good faith or which involve intentional
misconduct or knowing violations of the law, self-dealing or the unlawful
payment of dividends or repurchase of stock. Section 10 of the Registrant's
Certificate of Incorporation provides, in effect, that personal liability of a
director of the Registrant shall be eliminated to the fullest extent permitted
by the DGCL, as the same may be amended.
Reference is hereby made to Section 10 of the Amended and Restated
Certificate of Incorporation of the Company, Section 7 of the By-Laws and the
Underwriting Agreement regarding relevant indemnification provisions described
above and elsewhere herein.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the shares of Common Stock, par
value $.01 per share, offered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 4,582
NASD Filing Fee................................................... $ 2,012
NASDAQ Listing Fee................................................ $ 5,000
Blue Sky Fees and Expenses........................................ $ 35,000
Legal Fees and Expenses........................................... $ *
Accounting Fees................................................... $ *
Printing and Engraving Costs...................................... $ *
Transfer Agent Fees............................................... $ *
Miscellaneous Expenses............................................ $ *
---------
TOTAL....................................................... $ 500,000
</TABLE>
- ------------------------
* To be included by amendment
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth all sales of unregistered securities by the
Registrant within the past three years.
<TABLE>
<CAPTION>
AGGREGATE
NATURE OF CLASS OF OFFERING
TRANSACTION AND DATE PURCHASERS SECURITIES SOLD PRICE PRICE PER SHARE
- ---------------------------------------- ------------ ---------------- ------------- ---------------
<C> <S> <C> <C> <C>
Initial Capitalization May 1995 Two 3,500,000 shares $ 1,000 $ .0003
Investors of Common Stock
</TABLE>
The Company relied on Section 4(2) of the Securities Act and Rule 701
promulgated thereunder for each issuance. No underwriters were involved nor any
commissions paid in connection with any of the above transactions.
II-1
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation.
3.2 By-Laws.
3.3* Certificate of Designation.
4.3* Specimen Common Stock Certificate.
5.1* Opinion of Crummy, Del Deo, Dolan, Griffinger & Vecchione.
10.1 Asset Sale Agreement dated June 26, 1996 by and among the Company, Windsor Optical, Inc. and Jay
Kitnick and Kenneth Kitnick.
10.2 Possession Agreement dated February 26, 1997 by and among Summit Bank, Edward Kauz and Barbara Kauz
and Renaissance Eyewear, Inc.
10.3 Collateral Sale Agreement dated February 26, 1997 by and between the Company and Summit Bank.
10.4 Form of Underwriter's Warrant to Purchase Common Stock of the Company.
10.5* Employment Agreement between the Company and Barry Budilov.
10.6* Consulting Agreement between the Company and Rudy A. Slucker.
10.7 Employment Agreement dated June 26, 1996 between the Company and Kenneth Kitnick.
10.8 Employment Agreement dated February 27, 1997 between the Company and Edward Kauz.
10.9 Supplemental Employment Agreement dated February 27, 1997 between the Company and Edward Kauz.
10.10 Consulting Agreement dated June 26, 1996 between the Company and Jay Kitnick.
10.11 Consulting Agreement dated May 9, 1995 between the Company and Chanuk, Inc.
10.12 Promissory Note payable to Windsor Optical, Inc. dated June 26, 1996 in the principal amount of
$150,000.
10.13 Promissory Note payable to Windsor Optical, Inc. dated June 26, 1996 in the principal amount of
$300,000.
10.14 Loan Agreement dated June 7, 1996 between the Company and CoreStates Bank, N.A.
10.15 First Amendment to Loan Agreement dated February 25, 1997.
10.16 Second Rider to Guaranty dated February 25, 1997 amending and restating Rider to Guaranty dated June
7, 1996 executed by Barry Budilov and Carole Budilov in favor of CoreStates Bank, N.A.
10.17 Second Rider to Guaranty dated February 25, 1997 amending and restating Rider to guaranty dated June
7, 1996 executed by Rudy A. Slucker and Linda Slucker in favor of CoreStates Bank, N.A.
10.18 Second Rider to Subordination Agreement dated February 25, 1997.
10.19 Demand Note payable to CoreStates Bank, N.A. dated February 25, 1997 in the principal amount of
$12,000,000.
10.20+ Product License Agreement dated June 14, 1995 between the Company and Lifestyle Brands, Ltd.
(sunglasses, sunglass cases and accessories).
10.21+ Product License Agreement dated June 14, 1995 between the Company and Lifestyle Brands, Ltd.
(opthalmic frames and cases).
10.22+ License Agreement dated January 1, 1992 between Diplomat Optical Company and Playskool.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
10.23+ License Agreement dated January 1, 1992 between Chanuk Inc. d/b/a Diplomat Optical Company and Harve
Bernard Ltd.
10.24*+ License Agreement dated April 10, 1989 between Renaissance Eyewear Inc. and Nintendo of America Inc.
10.25*+ License Agreement dated December 1, 1992 between Renaissance Eyewear Inc. and Oscar De La Renta
Licensing Corporation.
10.26 [Intentionally Omitted]
10.27+ License Agreement dated April 1, 1994 between Windsor Optical, Inc. and Kenneth Jay Lane.
10.28*+ License Agreement dated August 24, 1995 by and among Kathy Ireland, Inc., the Sterling/ Winters Co.
and Diplomat Ambassador Eyewear Group.
10.29+ License Agreement dated January 1, 1993 between Jones Investment Co., Inc. and Diplomat Ambassador
Eyewear Group
10.30*+ Supply Agreement dated November 18, 1996 between StylRite Optical Mfg. Co., Inc. and the Company.
10.31*+ Merchandise License Agreement dated February 21, 1997 between Nintendo of America, Inc. and the
Company.
10.32+ Amendment dated November 1995 to License Agreement dated January 1, 1992 between Diplomat Optical
Company and Playskool.
10.33* Form of Lock-up Agreement.
23.1* Consent of Crummy, Del Deo, Dolan, Griffinger & Vecchione (included in Exhibit 5.1).
23.2 Consent of Richard A. Eisner & Company LLP
23.3 Consent of J. H. Cohn LLP
24.1 Power of Attorney (Page II-5)
</TABLE>
- ------------------------
* To be filed by amendment.
+ Portions of these Exhibits have been omitted and have been filed separately
with the Secretary of the Commission pursuant to Registrant's Application
Requesting Confidential Treatment under Rule 406 of the Securities Act.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters,
at the Closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-3
<PAGE>
The undersigned Registrant further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be treated as a new Registration Statement relating to the securities
offered therein, and the offering of such securities at the time shall be
treated as a be bona fide offering thereof.
II-4
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Philadelphia, State of Pennsylvania, on July 11, 1997.
AMBASSADOR EYEWEAR GROUP, INC.
By: /s/ BARRY BUDILOV
------------------------------------------
Barry Budilov
President and Chief Executive Officer
In accordance with the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates stated. Each person whose signature appears below hereby constitutes and
appoints Rudy A. Slucker and Barry Budilov, or either of them, as such person's
true and lawful attorney-in-fact and agent with full power of substitution for
such person and in such person's name, place and stead, in any and all
capacities, to sign and to file with the Commission, any and all amendments and
post-effective amendments to this Registration Statement, with exhibits thereto
and other documents in connection therewith, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or any
substitute therefor, may lawfully do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>
/s/ RUDY A. SLUCKER
------------------------------------------- Chairman of the Board July 11, 1997
Rudy A. Slucker
/s/ BARRY BUDILOV President, Chief Executive
------------------------------------------- Officer and Director (Principal July 11, 1997
Barry Budilov Executive Officer)
/s/ RAYMOND GREEN
------------------------------------------- Treasurer and Principal Financial July 11, 1997
Raymond Green and Accounting Officer
/s/ JAY RICE
------------------------------------------- Director July 11, 1997
Jay Rice
/s/ JEFFREY SEIKEN
------------------------------------------- Director July 11, 1997
Jeffrey Seiken
</TABLE>
II-5
<PAGE>
2,000,000 SHARES OF COMMON STOCK
AMBASSADOR EYEWEAR GROUP, INC.
FORM OF
UNDERWRITING AGREEMENT
_____________, 1997
Hampshire Securities Corporation
As Representative of the several
Underwriters named in Schedule I
attached hereto
640 Fifth Avenue
New York, New York 10019
Gentlemen:
The undersigned, Ambassador Eyewear Group, Inc., a Delaware corporation
(the "Company"), and The Slucker Family Foundation (the "Selling Stockholder")
hereby confirm their agreement with Hampshire Securities Corporation
(individually, "Hampshire," and, as representative (the "Representative") of the
several underwriters named in Schedule I hereto (the "Underwriters")), and the
Underwriters as follows:
1. INTRODUCTION.
(a) The Company hereby engages the Representative as its exclusive
financial adviser for 6 months commencing May 8, 1997 in connection with the
management of the initial public offering contemplated hereby.
<PAGE>
(b) The Company proposes to issue and sell to the Underwriters an
aggregate of 2,000,000 shares (the "Shares") of common stock, par value $.001
per share, of the Company (the "Common Stock"). Such shares of Common Stock are
hereinafter referred to as the "Firm Stock."
(c) Solely for the purpose of covering over-allotments, if any, the
Company proposes to grant to Hampshire, individually and not as Representative,
an option (the "Company Over-allotment Option") to purchase from it, in the
aggregate, up to an additional 150,000 shares of Common Stock at the public
offering price less than the underwriting discount. Such shares of Common
Stock are hereinafter referred to as the "Company Additional Stock." The Firm
Stock and the Additional Stock are hereinafter referred to as the "Company
Stock."
(d) Solely for the purpose of covering over-allotments, if any, the
Selling Stockholder propose to grant to Hampshire, individually and not as
Representative, an option (the "Stockholder Over-allotment Option") to purchase
from it, in the aggregate, up to an additional 150,000 shares of Common Stock.
Such shares of Common Stock are hereinafter referred to as the "Stockholder
Additional Stock." The Company Additional Stock and the Company Additional
Stock are hereinafter referred to as the "Additional Stock." The Firm Stock and
the Additional Stock are hereinafter referred to as the "Stock."
(e) The Company proposes to sell to Hampshire, individually and not as
Representative, 200,000 warrants (the "Underwriter's Warrants") to purchase up
to an aggregate of 200,000 shares of Common Stock (the "Warrant Shares") for a
purchase price of $.001 per warrant, or an aggregate purchase price of $200.00.
The Underwriter's Warrants shall be substantially in the form filed as an
exhibit to the Registration Statement (as hereinafter defined).
-2-
<PAGE>
The Underwriter's Warrants and the Warrant Shares are hereinafter referred to
collectively as the "Representative's Securities." The Stock and the
Representative's Securities are hereinafter referred to collectively as the
"Securities."
2. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
(1) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form SB-2
(Registration No. 333-_______), and may have filed one or more amendments
thereto and a Rule 462(b) Registration Statement (as hereinafter defined) in
accordance with Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), including in such registration statement and each such
amendment a related preliminary prospectus, for the registration of the
Securities under the Securities Act. As used in this Agreement, the term
"Registration Statement" shall refer to such registration statement referred
to in the first sentence of this Section 2(a), as amended, on file with the
Commission at the time such registration statement is declared by the
Commission to be effective under the Securities Act (including the
prospectus, financial statements, and exhibits filed as a part thereof,
provided, however, that such registration statement, at the time it is
declared by the Commission to be effective under the Securities Act, may omit
such information as is permitted to be omitted from such registration
statement when it becomes effective under the Securities Act pursuant to Rule
430A of the General Rules and Regulations of the Commission under the
Securities Act (the "Regulations"), which information (the "Rule 430A
Information") shall be deemed to be included in such registration
-3-
<PAGE>
statement when a final prospectus is filed with the Commission in accordance
with Rules 430A and 424(b)(1) or (4) of the Regulations and includes any Rule
462(b) Registration Statement); the term "Preliminary Prospectus" shall refer to
each prospectus included in the Registration Statement, or any amendments
thereto, before the Registration Statement is declared by the Commission to be
effective under the Securities Act, the form of prospectus omitting Rule 430A
Information included in the Registration Statement when the Registration
Statement becomes effective under the Securities Act, if applicable (the "Rule
430A Prospectus"), and any prospectus filed by the Company with the consent of
the Representative pursuant to Rule 424(a) of the Regulations; and the term
"Prospectus" shall refer to the final prospectus forming a part of the
Registration Statement in the form first filed with the Commission pursuant to
Rule 424(b)(1) or (4) of the Regulations or, if no such filing is required, the
form of final prospectus forming a part of the Registration Statement. As used
in this Agreement, the term "Rule 462(b) Registration Statement" means the
registration statement and any amendments thereto filed pursuant to Rule 462(b)
of the Regulations relating to the offering covered by the initial Registration
Statement.
(2) When the Registration Statement becomes effective under the
Securities Act, and at all times subsequent thereto up to and including the
Closing Date (as defined in Section 3(a) hereof) and each Additional Closing
Date (as defined in Section 3(b) hereof), and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or a dealer, and during such longer period until any post-effective
amendment thereto shall become effective under the Securities Act, the
Registration Statement (and any post-effective amendment thereto) and the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment or supplement to the Registration
-4-
<PAGE>
Statement or the Prospectus) will contain all statements which are required to
be stated therein in accordance with the Securities Act and the Regulations,
will comply with the Securities Act and the Regulations, and will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and no event will have occurred which should have been set forth in
an amendment or supplement to the Registration Statement or the Prospectus which
has not then been set forth in such an amendment or supplement; if a Rule 430A
Prospectus is included in the Registration Statement at the time it is declared
by the Commission to be effective under the Securities Act, the Prospectus filed
pursuant to Rules 430A and 424(b)(1) or (4) of the Regulations will contain all
Rule 430A Information and all statements which are required to be stated therein
in accordance with the Securities Act or the Regulations, will comply with the
Securities Act and the Regulations, and will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; and each Preliminary
Prospectus, as of the date filed with the Commission, contained all statements
required to be stated therein in accordance with the Securities Act and the
Regulations, complied with the Securities Act and the Regulations, and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; except that no representation or warranty is made in this
Section 2(a)(2) with respect to statements or omissions made in reliance upon,
and in conformity with, written information furnished to the Company as stated
in Section 8(b) with respect to any Underwriter by, or on behalf of, such
Underwriter through the Representative expressly for inclusion in the
Registration Statement, any Preliminary Prospectus, or the Prospectus, or any
amendment or
-5-
<PAGE>
supplement thereto, or with respect to statements or omissions made in
reliance upon, and in conformity with, written information furnished to the
Company as stated in Section 8(c) with respect to the Selling Stockholder by,
or on behalf of, the Selling Stockholder expressly for inclusion in the
Registration Statement, any Preliminary Prospectus, or the Prospectus, or any
amendment or supplement thereto.
(3) Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction has issued an order (a "Stop Order") suspending
the effectiveness of, or preventing or suspending the use of, the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, refusing to permit the effectiveness of the Registration
Statement, or suspending the registration or qualification of the Securities nor
has any of such authorities instituted or threatened to institute any
proceedings with respect to a Stop Order.
(4) Any contract, agreement, instrument, lease, or license
required to be described in the Registration Statement or the Prospectus has
been properly described therein. Any contract, agreement, instrument, lease, or
license required to be filed as an exhibit to the Registration Statement has
been filed with the Commission as an exhibit to the Registration Statement.
(5) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits of and
from, and declarations and filings with, all federal, state, local, and other
governmental authorities and all courts and other tribunals, to own, lease,
license, and use its properties and assets and to conduct its business in the
manner described in the Prospectus. The
-6-
<PAGE>
Company is duly qualified to do business as a foreign corporation and is in good
standing as such in every jurisdiction in which its ownership, leasing,
licensing, or use of property and assets or the conduct of its business makes
such qualification necessary, except where the failure to so qualify will not
have a material adverse effect on the Company's business, properties, or
financial condition on a consolidated basis.
(6) The authorized capital stock of the Company consists of
(i) 10,000,000 shares of Common Stock, of which 3,500,000 shares are
outstanding, (ii) 1,000,000 shares of Preferred Stock, par value $.01 per
share, none of which are outstanding and (iii) 118,100 shares of Series A
Cumulative Redeemable Preferred Stock, of which 118,100 are outstanding.
Each outstanding share of Common Stock is validly authorized and issued,
fully paid, and nonassessable, without any personal liability attaching to
the ownership thereof, has not been issued and is not owned or held in
violation of any preemptive or similar rights of stockholders. There is no
commitment, plan, or arrangement to issue, and no outstanding option,
warrant, or other right calling for the issuance of, any share of capital
stock of the Company or any security or other instrument which by its terms
is convertible into, or exercisable or exchangeable for, capital stock of the
Company, except as may be properly described in the Prospectus. There is
outstanding no security or other instrument which by its terms is convertible
into, or exercisable or exchangeable for, capital stock of the Company,
except as may be properly described in the Prospectus. The certificates
evidencing the Common Stock are in due and proper form.
(7) The consolidated financial statements of the Company
included in the Registration Statement and the Prospectus fairly present, with
respect to the Company, the financial position, the results of operations, the
cash flows, and the other information purported to
-7-
<PAGE>
be shown therein at the respective dates and for the respective periods to which
they apply. Such consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (except to the extent
that certain footnote disclosures regarding any stub period may have been
omitted in accordance with the applicable rules of the Commission under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) consistently
applied throughout the periods involved, are correct and complete in all
material respects, and are in accordance with the books and records of the
Company. Richard A. Eisner & Company, LLP, the accountants whose report on the
audited consolidated financial statements is filed with the Commission as a part
of the Registration Statement, are, and during the periods covered by their
reports included in the Registration Statement and the Prospectus were,
independent certified public accountants with respect to the Company within the
meaning of the Securities Act and the Regulations. No other financial
statements are required by Form SB-2 or otherwise to be included in the
Registration Statement or the Prospectus. There has at no time been a material
adverse change in the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the Company on a
consolidated basis from the latest information set forth in the Registration
Statement or the Prospectus, except as may be properly described in the
Prospectus.
(8) There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation pending, threatened, or,
to the best knowledge of the Company, in prospect (or any basis therefor) with
respect to the Company, or any of its operations, businesses, properties, or
assets, except as may be properly described in the Prospectus or such as
individually or in the aggregate do not now have, and will not in the future
have, a material adverse effect upon the operations, business, properties, or
assets of the Company. To the
-8-
<PAGE>
best knowledge of the Company, it is not in violation of, or in default with
respect to, any law, rule, regulation, order, judgment, or decree, except as may
be properly described in the Prospectus or such as in the aggregate do not now
have, and will not in the future have, a material adverse effect upon the
operations, business, properties, or assets of the Company; nor is the Company
currently required to take any action in order to avoid any such violation or
default.
(9) The Company has good and marketable title to all properties
and assets which the Prospectus indicates are owned by it, free and clear of all
liens, security interests, pledges, charges, encumbrances, and mortgages, except
as may be properly described in the Prospectus or as are not material to the
Company. No real property owned, leased, licensed, or used by the Company lies
in an area which is, or to the knowledge of the Company will be, subject to
zoning, use, or building code restrictions which would prohibit, and no state of
facts relating to the actions or inaction of another person or entity or his or
its ownership, leasing, licensing, or use of any real or personal property
exists or will exist which would prevent, the continued effective ownership,
leasing, licensing, or use of such real property in the business of the Company,
each as presently conducted or as the Prospectus indicates it contemplates
conducting, except as may be properly described in the Prospectus.
(10) Neither the Company nor, to the knowledge of the Company,
any other party, is now, or is expected by the Company to be, in violation or
breach of, or in default with respect to, any provision of any contract,
agreement, instrument, lease, license, arrangement, or understanding which is
material to the Company, and each such contract, agreement, instrument, lease,
license, arrangement, and understanding is in full force and effect and is the
legal, valid, and binding obligation of the parties thereto and is enforceable
as to them in accordance with its
-9-
<PAGE>
respective terms. The Company enjoys peaceful and undisturbed possession under
all leases and licenses under which it is operating. Except as described in the
Prospectus, the Company is not a party to, or bound by, any contract,
agreement, instrument, lease, license, arrangement, or understanding, or subject
to any charter or other restriction, which has had, or may in the future have, a
material adverse effect on the financial condition, results of operations,
business, properties, assets, liabilities, or future prospects of the Company.
The Company is not in violation or breach of, or in default with respect to, any
term of its respective certificate of incorporation (or other charter document)
or by-laws.
(11) The Company owns or possesses adequate rights to use all
patents, patent rights, inventions, trade secrets, licenses, know-how,
proprietary techniques, including processes and substances, trademarks, service
marks, trade names, and copyrights described or referred to in the Prospectus as
owned or used by it or which are necessary for the conduct of its business as
currently conducted as described in the Prospectus and, to the best knowledge of
the Company, its business as contemplated as described in the Prospectus. To
the best knowledge of the Company, all such patents, patent rights, licenses,
trademarks, service marks, and copyrights are (i) valid and enforceable, (ii)
not being infringed by any third parties which infringement could, singly or in
the aggregate, materially and adversely affect the business, properties,
operations, condition (financial or otherwise), results of operations, income,
or business prospects of the Company, as presently being conducted or as
proposed to be conducted as described in the Prospectus, and (iii) are
uncontested by any third party. The Company has no knowledge of, nor has it
received any notice of, infringement of, or conflict with, asserted rights of
others with respect to any patents, patent rights, inventions, trade secrets,
licenses, know-how, proprietary techniques,
-10-
<PAGE>
including processes and substances, trademarks, service marks, trade names, or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling, or finding could materially and adversely affect the business,
properties, operations, condition (financial or otherwise), results of
operations, income, or business prospects of the Company, as presently being
conducted or as proposed to be conducted as described in the Prospectus.
(12) Neither the Company nor, to the best knowledge of the
Company, any director, officer, agent, employee, or other person associated
with, or acting on behalf of, the Company has, directly or indirectly (i) used
any corporate funds for unlawful contributions, gifts, entertainment, or other
unlawful expenses relating to political activity; (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds; (iii) violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made
any bribe, rebate, payoff, influence payment, kickback, or other unlawful
payment. The Company's internal accounting controls and procedures are
sufficient to cause the Company to comply in all respects with the Foreign
Corrupt Practices Act of 1977, as amended.
(13) The Company has all requisite power and authority to
execute, deliver, and perform each of this Agreement and the Underwriter's
Warrants. All necessary corporate proceedings of the Company have been duly
taken to authorize the execution, delivery, and performance by the Company of
this Agreement and the Underwriter's Warrants. This Agreement has been duly
authorized, executed, and delivered by the Company, is the legal, valid, and
binding obligation of the Company. The Underwriter's Warrants have been duly
authorized by the Company and, when executed and delivered by the Company, will
be legal, valid, and
-11-
<PAGE>
binding obligations of the Company, each enforceable as to the Company in
accordance with its terms. No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with, any federal,
state, local, or other governmental authority or any court or other tribunal is
required by the Company for the execution, delivery, or performance by the
Company of this Agreement or the Underwriter's Warrants, except filings under
the Securities Act which have been or will be made before the Closing Date, and
consents consisting only of consents under "blue sky" or securities laws which
have been obtained at or prior to the date of this Agreement. No consent of any
party to any contract, agreement, instrument, lease, license, arrangement, or
understanding to which the Company is a party, or to which any of its properties
or assets are subject, is required for the execution, delivery, or performance
of this Agreement and the Underwriter's Warrants; and the execution, delivery,
and performance of this Agreement and the Underwriter's Warrants will not
violate, result in a breach of, conflict with, result in the creation or
imposition of any lien, charge, or encumbrance upon any properties or assets of
the Company pursuant to the terms of, or, with or without the giving of notice
or the passage of time or both, entitle any party to terminate or call a default
under, any such contract, agreement, instrument, lease, license, arrangement, or
understanding, or violate, result in a breach of, or conflict with any term of
the certificate of incorporation (or other charter document) or by-laws of the
Company, or violate, result in a breach of, or conflict with, any law, rule,
regulation, order, judgment, or decree binding on the Company or to which any of
its operations, businesses, properties, or assets are subject.
(14) The Firm Stock is validly authorized and, when issued and
delivered in accordance with this Agreement, will be validly issued, fully paid,
and nonassessable, without
-12-
<PAGE>
any personal liability attaching to the ownership thereof, and will not be
issued in violation of any preemptive or similar rights of stockholders, and
the Underwriters will receive good title to the shares of Firm Stock
purchased by them, respectively, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders' agreements, and
voting trusts. The Company Additional Stock is validly authorized and, when
issued in accordance with the terms hereof, will be validly issued, fully
paid, and nonassessable, without any personal liability attaching to the
ownership thereof, and will not be issued in violation of any preemptive or
similar rights of stockholders. The Stockholder Additional Stock is validly
authorized and issued, fully paid, and nonassessable, without any personal
liability attaching to the ownership thereof, and was not issued in violation
of any preemptive or similar rights of stockholders. The Company Additional
Stock has been duly and validly reserved for issuance. The Stock conforms to
all statements relating thereto contained in the Registration Statement and
the Prospectus.
(15) The Warrant Stock is validly authorized and has been duly
and validly reserved for issuance and, when issued and delivered upon exercise
of the Underwriter's Warrants in accordance with the terms thereof, will be
validly issued, fully paid, and nonassessable, without any personal liability
attaching to the ownership thereof, and will not be issued in violation of any
preemptive or similar rights of stockholders; and the holders of the
Underwriter's Warrants will receive good title to the securities purchased by
them upon the exercise of the Underwriter's Warrants, free and clear of all
liens, security interests, pledges, charges, encumbrances, stockholders'
agreements, and voting trusts. The Representative's Securities conform to all
statements relating thereto contained in the Registration Statement and the
Prospectus.
-13-
<PAGE>
(16) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except as may
otherwise be properly described in the Prospectus, the Company has not (i)
issued any securities or incurred any material liability or material obligation,
primary or contingent, for borrowed money, (ii) entered into any material
transaction not in the ordinary course of business, (iii) declared or paid any
dividend on its capital stock or (iv) experienced any adverse changes or any
development which may materially adversely effect the condition (financial or
otherwise), net assets or stockholders' equity, results of operations, business,
key personnel, assets, or properties of the Company and the Subsidiaries taken
as a whole.
(17) Neither the Company nor any of its officers, directors, or
affiliates (as defined in the Regulations), has taken or will take, directly or
indirectly, prior to the termination of the offering contemplated by this
Agreement, any action designed to stabilize or manipulate the price of any
security of the Company, or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company, to facilitate the sale
or resale of any of the Firm Stock or the Additional Stock.
(18) The Company has obtained from each of its directors,
officers, and stockholders, other than the Selling Stockholder with respect to
the Stockholder Additional Stock, a written agreement, in form and substance
satisfactory to counsel for the Underwriters, that, for a period of 18 months
from the date on which the Registration Statement is declared by the Commission
to be effective under the Securities Act, he, she, or it will not, without the
prior written consent of the Representative, publicly offer, pledge, sell,
hypothecate, contract to sell, grant any
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option for the sale of, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any security or other instrument which by its terms is
convertible into, or exercisable or exchangeable for, shares of Common Stock or
other securities of the Company, including, without limitation, any shares of
Common Stock issuable pursuant to the terms of any employee stock options;
provided, however, that such persons may offer, sell, contract to sell, grant an
option for the sale of, or otherwise dispose of all or any part of his, her, or
its shares of Common Stock or other such security or instrument of the Company
during such period if such transaction is private in nature and the transferee
of such shares of Common Stock or other securities or instruments agrees, prior
to such transaction, to be bound by all of the provisions of such agreement.
(19) During the two-year period commencing on the effective date
of the of the Registration Statement, the Representative shall have the right
of first refusal to act as underwriter, placement agent or investment banker, as
the case may be, for any and all public offerings or private placements of the
Company's securities, or any merger, acquisition, or disposition of assets of
the Company, if the Company uses a lead manager, placement agent or investment
banker performing such functions for a fee. The Representative shall advise the
Company no later than seven days following the submission to the Representative
in writing of such proposed transaction(s) of its election to exercise said
right. If any such proposal is not accepted by the Representative, but later
modified, the Company will resubmit such proposal to the Representative. Should
the Representative elect, at any time, not to exercise said right, the
Representative's right of first refusal regarding future financings shall be
unaffected.
(20) The Company is not, and does not intend to conduct its
business in a manner in which it would be required to register as, an
"investment company" as defined in the
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Investment Company Act of 1940, as amended (the "Investment Company Act"), and
the rules and regulations promulgated thereunder.
(21) No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of the filing
or effectiveness of the Registration Statement, which right has not been waived.
(22) Except as may be set forth in the Prospectus, the Company
has not incurred any liability for a fee, commission, or other compensation on
account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(23) Neither the Company, nor any of their respective affiliates,
is presently doing business with the government of Cuba or with any person or
affiliate located in Cuba. If, at any time after the date on which the
Registration Statement is declared by the Commission to be effective under the
Securities Act or with the Florida Department of Banking and Finance (the
"Florida Department"), whichever is later, and prior to the end of the period
referred to in the first clause of Section 2(a)(2) hereof, the Company and any
Subsidiary commences engaging in business with the government of Cuba or with
any person or affiliate located in Cuba, the Company will so inform the Florida
Department within 90 days after such commencement of business in Cuba, and,
during the period referred to in Section 2(a)(2) hereof, will inform the Florida
Department within 90 days after any change occurs with respect to previously
reported information.
(24) No officer, director, or stockholder of the Company has any
affiliation or association with the National Association of Securities Dealers,
Inc. (the "NASD") or any member thereof.
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(25) Except as disclosed in the Prospectus, the Company has filed
all necessary federal, state, local, and foreign income and franchise tax
returns and other reports required to be filed and has paid all taxes shown as
due thereon; and there is no tax deficiency which has been, or, to the knowledge
of the Company, might be, asserted against the Company.
(26) To the best knowledge of the Company, none of the activities
or business of the Company is in violation of, or will cause the Company to
violate, any law, rule, regulation, or order of the United States, any state,
county, or locality, or of any agency or body of the United States or of any
state, county, or locality, the violation of which would have a material adverse
effect upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company.
(27) The Common Stock has been approved for quotation on the
Nasdaq National Market.
(b) The Selling Stockholder represents and warrants to, and agrees
with, the several Underwriters that:
(1) The Selling Stockholder has (i) caused a negotiated
certificate or negotiated certificates representing the number of shares of
Stockholder Additional Stock to be delivered to ___________, attorney-at-law
(the "Custodian"), duly endorsed in blank or together with blank stock powers
duly executed, with the Selling Stockholder's signature appropriately guaranteed
by medallion guarantee, such certificate or certificates to be held by the
Custodian pursuant to a letter of transmittal and custody agreement for
delivery, pursuant to the provisions hereof, one or more Additional Closing
Dates and (ii) granted an irrevocable power of attorney to ___________ (the
"Attorneys") to purchase all requisite stock transfer tax stamps, to execute
this
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Agreement (including agreeing on the price at which the Stockholder Additional
Stock is to be sold to the Representative) and thereafter to modify and amend
this Agreement, to settle any dispute relating to the terms of this Agreement,
to waive any condition to the obligations of the Selling Stockholder, and to
execute all other instruments and documents and to perform all other acts
necessary or desirable to carry out the provisions of this Agreement on behalf
of the Selling Stockholder. Such letter of transmittal and custody agreement,
together with such irrevocable power of attorney, are hereinafter referred to as
the "Custodial Agreement."
(2) There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or, to the best knowledge of the Selling
Stockholder, investigation pending, threatened, or in prospect (or any basis
therefor) with respect to the Selling Stockholder or any of the Selling
Stockholder's business, properties, or assets, except as otherwise disclosed in
the Registration Statement. The Selling Stockholder is not in violation of, or
in default with respect to, any law, rule, regulation, order, judgment, or
decree; nor is the Selling Stockholder required to take any action in order to
avoid such violation or default.
(3) The Selling Stockholder has all requisite power and
authority to execute, deliver, and perform this Agreement and the Custodial
Agreement. This Agreement and the Custodial Agreement have been duly executed
and delivered by the Selling Stockholder, are the legal, valid, and binding
obligations of the Selling Stockholder, and are enforceable as to the Selling
Stockholder in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, or other laws affecting
the rights of creditors generally. To the Selling Stockholder's best knowledge,
no consent, authorization, approval, order, license, certificate, or permit of
or from, or declaration or filing with, any federal, state, local, or other
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governmental authority or any court or other tribunal is required by the Selling
Stockholder for the execution, delivery, or performance of this Agreement or the
Custodial Agreement, except filings under the Securities Act which have been or
will be made before the Closing Date and such consents consisting only of
consents under "blue sky" or securities laws which have been obtained at or
prior to the date of this Agreement by the Selling Stockholder. No consent of
any party to any contract, agreement, instrument, lease, license, arrangement,
or understanding to which the Selling Stockholder is a party, or to which any of
the Selling Stockholder's properties or assets are subject, is required for the
execution, delivery, or performance of this Agreement or the Custodial
Agreement; and the execution, delivery, and performance of this Agreement and
the Custodial Agreement will not violate, result in a breach of, conflict with,
or result in the creation or imposition of any lien, charge, or encumbrance upon
any properties or assets of the Selling Stockholder pursuant to the terms of,
or, with or without the giving of notice or the passage of time or both, entitle
any party to terminate or call a default under, any such contract, agreement,
instrument, lease, license, arrangement, or understanding, or, to the Selling
Stockholder's best knowledge, violate, result in a breach of, or conflict with,
any law, rule, regulation, order, judgment, or decree binding on the Selling
Stockholder or to which any of the Selling Stockholder's business, properties,
or assets are subject.
(4) The Selling Stockholder has good title to the shares of
Stockholder Additional Stock to be sold by the Selling Stockholder pursuant to
this Agreement, free and clear of all liens, security interests, pledges,
charges, encumbrances, stockholders' agreements, and voting trusts (except those
created by this Agreement and the Custodial Agreement and those which have been
terminated prior to the execution hereof), and, when and if delivered in
accordance with this
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Agreement, the Underwriters will receive good title to the shares of Stockholder
Additional Stock purchased by them from the Selling Stockholder, free and clear
of all liens, security interests, pledges, charges, encumbrances, stockholders'
agreements, and voting trusts. The Stockholder Additional Stock conforms to all
statements relating thereto contained in the Registration Statement or the
Prospectus.
(5) Neither the Selling Stockholder nor any of the Selling
Stockholder's affiliates (as defined in the Regulations) has taken or will take,
directly or indirectly, prior to the termination of the offering contemplated by
this Agreement, any action designed to stabilize or manipulate the price of any
security of the Company, or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company, to facilitate the sale
or resale of any of the Stock or the Additional Stock.
(6) The Selling Stockholder has reviewed, and is familiar with,
the Registration Statement and all amendments and supplements thereto, if any,
filed with the Commission prior to the date hereof, and with each Preliminary
Prospectus and the Prospectus contained therein, as supplemented, if applicable,
to the date hereof, and all information relating to the Selling Stockholder, the
Selling Stockholder's shares of Common Stock, and any contractual or other
business relationship between the Selling Stockholder and the Company that is
set forth in the Registration Statement, any such amendment or supplement
thereto, each Preliminary Prospectus, and the Prospectus, or any such supplement
thereof, and all other information furnished or to be furnished by, or on behalf
of, the Selling Stockholder for use in the Registration Statement, any such
amendment or supplement thereto, any Preliminary Prospectus, and the Prospectus,
or any
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such supplement thereto, is and, at the Closing Date and each Additional Closing
Date, will be, true, correct, and complete and does not, and at the Closing Date
and each Additional Closing Date, will not, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make such information not misleading.
(7) The Selling Stockholder has not incurred any liability for a
fee, commission, or other compensation on account of the employment of a broker
or finder in connection with the transactions contemplated by this Agreement.
(8) The Selling Stockholder's decision to sell the Stockholder
Additional Stock has not been based upon any negative or otherwise material
information with respect to the Company which is not set forth in the
Prospectus.
3. PURCHASE, SALE, AND DELIVERY OF THE STOCK AND THE UNDERWRITER'S
WARRANTS.
(a) On the basis of the representations, warranties, covenants, and
agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to the
Underwriters and the Underwriters, severally and not jointly, agree to purchase
from the Company, the numbers of shares of Firm Stock set forth opposite the
respective names of the Underwriters in Schedule I hereto.
The purchase price per share of the Firm Stock to be paid by the
several Underwriters shall be $__________. The initial public offering price
per share of the Firm Stock shall be $_________.
Payment for the Firm Stock by the Underwriters shall be made by
certified or official bank check in New York Clearing House (next day) funds or
by electronic wire transfer of next day funds, payable to the order of the
Company, at the offices of Hampshire Securities
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Corporation, 640 Fifth Avenue, New York, New York 10019, or at such other place
in the New York City metropolitan area as the Representative shall determine and
advise the Company by at least two full days' notice in writing, upon delivery
of the Firm Stock to the Representative for the respective accounts of the
Underwriters. Such delivery and payment shall be made at 9:00 a.m., New York
City local time, on the third business day following the time of the initial
public offering, as defined in Section 11(a) hereof (unless such time and date
is postponed in accordance with the provisions of Section 9(c) hereof), or at
such other time as shall be agreed upon between the Representative and the
Company. The time and date of such delivery and payment are hereinafter
referred to as the "Closing Date."
Certificates representing the Firm Stock shall be registered in such
name or names and in such authorized denominations as the Representative may
request in writing at least two full business days prior to the Closing Date.
The Company shall permit the Representative to examine and package such
certificates for delivery at least one full business day prior to the Closing
Date.
(b) The Selling Stockholder hereby grants to Hampshire the
Stockholder Over-allotment Option to purchase up to 150,000 shares of Common
Stock, as may be necessary to cover over-allotments, at the same purchase price
per share to be paid by the several Underwriters to the Company for the Firm
Stock as provided for in this Section 3 hereof. The Company hereby grants to
Hampshire the Company Over-allotment Option to purchase up to 150,000 shares of
Common Stock, as may be necessary to cover over-allotments, at the same purchase
price per share to be paid by the several Underwriters to the Company for the
Firm Stock as provided for in this Section 3 hereof. The Over-allotment Options
may be exercised only to cover over-allotments in the sale of shares by
Hampshire. The Company Over-allotment Option and the Stockholder Over-allotment
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Option shall be exercised pro rata to one another. The Over-allotment Options
may be exercised by Hampshire on the basis of the representations, warranties,
covenants, and agreements of the Company and the Selling Stockholder herein
contained, but subject to the terms and conditions herein set forth, at any time
and from time to time on or before the forty-fifth day following the date on
which the Registration Statement becomes effective under the Securities Act, by
written notice by Hampshire to the Company and Custodian. Such notice shall set
forth the aggregate number of shares of Additional Stock as to which the
Over-allotment Options are being exercised, the name or names in which the
certificates representing the Additional Stock are to be registered, the
authorized denominations in which the Additional Stock is to be registered, and
the time and date, as determined by Hampshire, when such shares of Additional
Stock are to be delivered (each such time and date are hereinafter referred to
as an "Additional Closing Date"); provided, however, that no Additional Closing
Date shall be earlier than the Closing Date nor earlier than the second business
day after the date on which the notice of the exercise of the Stockholder
Over-allotment Option and the Company Over-allotment Option shall have been
given nor later than the eighth business day after the date on which such notice
shall have been given.
In the event the Company declares or pays a dividend or a distribution
on the Common Stock, whether in the form of cash, shares of Common Stock, or
other consideration, prior to the Additional Closing Date, such dividend or
distribution shall also be paid on the Additional Stock on the later of the
Additional Closing Date and the date on which such dividend or distribution is
payable.
Payment for the shares of Additional Stock by Hampshire shall be made
by certified or official bank check in New York Clearing House (next day) funds
or by electronic wire transfer
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of next day funds payable to the order of the Custodian and the Company (pro
rata as described above) at the offices of Hampshire Securities Corporation, 640
Fifth Avenue, New York, New York 10019, or at such other place in the New York
City metropolitan area as Hampshire shall determine and advise the Company by at
least two full days' notice in writing, upon delivery of the shares of
Additional Stock to Hampshire for its account.
Certificates for the shares of Additional Stock shall be registered
in such name or names and in such authorized denominations as Hampshire may
request in writing at least two full business days prior to the Additional
Closing Date with respect thereto. The Company shall permit Hampshire to
examine and package such certificates for delivery at least one full business
day prior to the Additional Closing Date with respect thereto.
(c) The Company hereby agrees to issue and sell to Hampshire and/or
its designees on the Closing Date the Underwriter's Warrants to purchase the
Warrant Shares for an aggregate purchase price of $200.00.
(d) During the four-year period commending one year from the
effective date of the Registration Statement, the Company will agree to use
its best efforts to register the Underwriter's Warrants and the Warrant
Shares when and if requested by the Representative. These best efforts shall
include the preparation and filing of one demand registration statement with
respect to the Warrant Shares during such four-year period and maintaining
the effectiveness thereof, for nine months or such shorter period as may be
required for the sale of the Warrant Shares in the open market, at the
Company's sole expense (other than underwriter or selling broker costs),
including "blue sky" fees and expenses. The Company agrees that for the
period starting at the beginning of the second year and concluding at the end
of the seventh year after the effective
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date of the Registration Statement, the Company will notify all holders of
the Underwriter's Warrants and Warrant Shares of the Company's intention to
engage in another public offering of the Company's securities (whether by the
Company or by any security holder of the Company), and, if requested by the
Representative, include any Underwriter's Warrants and Warrant Shares in such
offering at the Company's sole expense and maintain the effectiveness thereof
for at least 12 months ("Piggyback Registration Rights").
Delivery and payment for the Underwriter's Warrants shall be made on
the Closing Date. The Company shall deliver to Hampshire, upon payment
therefor, certificates representing the Underwriter's Warrants in the name or
names and in such authorized denominations as Hampshire may request. The
Underwriter's Warrants shall be exercisable for a period of four years
commencing one year from the date on which the Registration Statement was
declared effective under the Securities Act at an initial exercise price per
Warrant Share equal to $_____________.
(d) It is understood that the Hampshire may (but shall not be
obligated to) make any and all the payments required pursuant to this Section 3
on behalf of any Underwriters whose check or checks shall not have been received
by the Representative at the time of delivery of the Stock to be purchased by
such Underwriter or Underwriters. Any such payment by the Representative shall
not relieve any such Underwriter or Underwriters of any of its or their
obligations hereunder.
4. OFFERING. The Underwriters are to make a public offering of the Firm
Stock as soon, on or after the date on which the Registration Statement becomes
effective under the Securities Act, as the Representative deems it advisable so
to do. The Firm Stock is to be initially offered to the public at the initial
public offering price as provided for in Section 3(a) (such price being
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hereinafter referred to as the "public offering price"). After the initial
public offering, the Representative may from time to time increase or decrease
the public offering price, in the sole discretion of the Representative, by
reason of changes in general market conditions or otherwise.
5. COVENANTS.
(a) The Company covenants that it will:
(1) To use its best efforts to cause at least two persons to be
elected to the Company's Board of Directors who are deemed to be independent of
the Company's Management.
(2) Use its best efforts to cause the Registration Statement to
become effective under the Securities Act as promptly as possible and notify the
Representative and counsel to the Underwriters immediately, and confirm such
notice in writing, (i) when the Registration Statement and any post-effective
amendment thereto become effective under the Securities Act, (ii) of the receipt
of any comments from the Commission or the "blue sky" or securities authority of
any jurisdiction regarding the Registration Statement, any post-effective
amendment thereto, the Prospectus, or any amendment or supplement thereto,
(iii) of the filing with the Commission of any supplement to the Prospectus, and
(iv) of the receipt of any notification with respect to a Stop Order or the
initiation or threatening of any proceeding with respect to a Stop Order. The
Company will use its best efforts to prevent the issuance of any Stop Order and,
if any Stop Order is issued, to obtain the lifting thereof as promptly as
possible. If the Registration Statement has become or becomes effective under
the Securities Act with a form of prospectus omitting Rule 430A Information, or
filing of the Prospectus with the Commission is otherwise required under Rule
424(b) of the Regulations, the Company will file with the Commission the
Prospectus, properly
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completed, pursuant to Rule 424(b) of the Regulations within the time period
prescribed and will provide evidence satisfactory to the Representative of such
timely filing.
(3) During the time when a prospectus relating to the Firm
Stock or the Additional Stock is required to be delivered hereunder or under
the Securities Act or the Regulations, comply with all requirements imposed
upon it by the Securities Act, as now existing and as hereafter amended, and
by the Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of, or dealings in, the Stock in accordance
with the provisions hereof and the Prospectus. If, at any time when a
prospectus relating to the Firm Stock or the Additional Stock is required to
be delivered hereunder or under the Securities Act or the Regulations, any
event shall have occurred as a result of which, in the reasonable opinion of
counsel for the Company or counsel for the Underwriters, the Registration
Statement or the Prospectus as then amended or supplemented contains any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or if, in the opinion of either of such counsel, it is necessary
at any time to amend or supplement the Registration Statement or the
Prospectus to comply with the Securities Act or the Regulations, the Company
will immediately notify the Representative and promptly prepare and file with
the Commission an appropriate amendment or supplement (in form and substance
satisfactory to the Representative and counsel to the Underwriters) which
will correct such statement or omission or which will effect such compliance
and will use its best efforts to have any such amendment declared effective
under the Securities Act as soon as possible.
(4) Deliver without charge to each of the several Underwriters
such number of copies of each Preliminary Prospectus as may reasonably be
requested by the
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Underwriters and, as soon as the Registration Statement, or any amendment
thereto, becomes effective under the Securities Act or a supplement is filed
with the Commission, deliver without charge to the Representative two signed
copies of the Registration Statement, including exhibits, or such amendment
thereto, as the case may be, and two copies of any supplement thereto, and
deliver without charge to each of the several Underwriters such number of copies
of the Prospectus, the Registration Statement, and amendments and supplements
thereto, if any, without exhibits, as the Representative may request for the
purposes contemplated by the Securities Act.
(5) Endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective under the Securities Act, to qualify the Securities for offering and
sale under the "blue sky" or securities laws of such jurisdictions as may be
designated by the Representative; provided, however, that no such qualification
shall be required in any jurisdiction where, as a result thereof, the Company
would be subject to service of general process or to taxation as a foreign
corporation doing business in such jurisdiction to which it is not then subject.
In each jurisdiction where such qualification shall be effected, the Company
will, unless the Representative agrees in writing that such action is not at the
time necessary or advisable, file and make such statements or reports at such
times as are or may be required by the laws of such jurisdiction.
(6) Make generally available, within the meaning of Section
11(a) of the Securities Act and the Regulations, to its security holders as soon
as practicable, but not later than ________________, an earnings statement,
which need not be certified by independent certified public accountants unless
required by the Securities Act or the Regulations, but which shall satisfy the
provisions of Section 11(a) of the Securities Act and the Regulations, covering
a period of at
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least 12 months beginning after the date on which the Registration Statement was
declared effective under the Securities Act.
(7) For a period of 18 months after the date of the
Prospectus, not, without the prior written consent of the Representative,
offer, issue, sell, hypothecate, contract to sell, grant any option for the
sale of, or otherwise dispose of, directly or indirectly, any shares of
Common Stock or other securities of the Company, or any security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, shares of Common Stock, except as contemplated by Section 3
hereof and except for (i) the issuance of stock options, or shares of Common
Stock issuable upon the exercise thereof, which have been or may be granted
pursuant to the Company's current incentive stock option plan, up to an
aggregate of _______ shares of Common Stock, all as properly described in the
Prospectus, (ii) upon the exercise of warrants outstanding on the date
hereof, as properly described in the Prospectus, (iii) the issuance of shares
of Warrant Stock issuable upon exercise of the Underwriter's Warrants, and
(iv) the issuance of shares of Common Stock in connection with an acquisition
by the Company.
(8) For a period of five years after the date on which the
Registration Statement was declared effective under the Securities Act furnish
you, without charge, the following:
(i) within 90 days after the end of each fiscal year, one
copy of financial statements certified by independent certified public
accountants, including a balance sheet, statement of income, and statement of
changes in cash flows of the Company and its then existing subsidiaries, if any,
with supporting schedules, prepared in accordance with generally accepted
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accounting principles, as at the end of such fiscal year and for the 12 months
then ended, which may be on a consolidated basis;
(ii) as soon as practicable after they have been sent to
stockholders of the Company or filed with, or furnished to, the Commission or
the NASD, one copy of each annual and interim financial and other report or
communication sent by the Company to its stockholders or filed with, or
furnished to, the Commission or the NASD;
(iii) as soon as practicable, one copy of every press
release and every material news item and article in respect of the Company or
its affairs which was released by the Company; and
(iv) such additional documents and information with respect
to the Company and its affairs, as the Representative may from time to time
reasonably request; provided, however, that such additional documents and
information shall be received by the Representative on a confidential basis,
unless otherwise disclosed to the public, and shall not be used in violation of
the federal securities laws and the rules and regulations promulgated
thereunder.
(9) Apply the net proceeds received by the Company from the
offering contemplated by this Agreement in the manner set forth under the
heading "Use of Proceeds" in the Prospectus.
(10) Furnish to the Representative as early as practicable prior
to the Closing Date and each Additional Closing Date, if any, as the case may
be, but not less than two full business days prior thereto, a copy of the latest
available unaudited interim financial statements
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of the Company which have been read by the Company's independent certified
public accountants, as stated in their letters to be furnished pursuant to
Section 7(f) hereof.
(11) File no amendment or supplement to the Registration
Statement or Prospectus at any time, whether before or after the date on which
the Registration Statement was declared effective under the Securities Act,
unless such filing shall comply with the Securities Act and the Regulations and
unless the Representative shall previously have been advised of such filing and
furnished with a copy thereof, and the Representative shall have approved such
filing in writing. Until the later of (i) the completion by the Underwriters of
the distribution of the Stock (but in no event more than nine months after the
date on which the Registration Statement shall have been declared effective
under the Securities Act) and (ii) 25 days after the date on which the
Registration Statement shall have been declared effective under the Securities
Act, the Company will prepare and file with the Commission, promptly upon the
Representative's request, any amendments or supplements to the Registration
Statement or the Prospectus which, in the sole opinion of the Representative,
may be necessary or advisable in connection with the distribution of the Stock.
(12) File timely with the Commission an appropriate form to
register the Common Stock, including the Stock, pursuant to Section 12(g) of the
Exchange Act and comply with all registration, filing, and reporting
requirements of the Exchange Act, which may from time to time be applicable to
the Company.
(13) Comply with all provisions of all undertakings contained in
the Registration Statement.
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(14) Prior to the later of (A) the date referred to in the second
sentence of clause (10) of this paragraph (a) of this Section 5, and (B) any
Additional Closing Date, issue no press release or other communication, directly
or indirectly, and hold no press conference with respect to the Company, the
financial condition, results of operations, business, properties, assets,
liabilities of any the Company or any Subsidiary, or this offering, without the
prior written consent of the Representative.
(15) Make all filings required to maintain the inclusion of the
Common Stock on the Nasdaq National Market for a least four years from the date
of this Agreement.
(16) On the Closing Date, sell to the Hampshire, individually and
not as Representative of the several Underwriters, at the price of $.001 per
warrant, warrants to purchase the Warrant Stock, which Underwriter's Warrants
shall be substantially in the form set forth as an exhibit to the Registration
Statement.
(17) Until expiration of the Underwriter's Warrants, keep
reserved sufficient shares of Common Stock for issuance upon exercise of the
Underwriter's Warrants.
(18) Deliver to the Representative, without charge, within a
reasonable period after the last Additional Closing Date or the expiration of
the period during which the Representative may exercise the Over-allotment
Options, five sets of bound volumes of the Registration Statement and all
related materials to the individuals designated by the Representative or counsel
to the Underwriters.
(19) For a period of three years after the effective date on
which the Registration Statement is declared effective under the Securities Act,
provide, at its sole expense,
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to the Representative copies of the Company's daily transfer sheets, if so
requested by the Representative.
(20) Maintain key-person life insurance payable to the Company on
the life of Mr. Barry Budilov, President and Chief Executive Officer of the
Company, in the amount of at least $1,000,000, for the period of time equal to
the longer of three years from the date on which the Registration Statement
becomes effective under the Securities Act and the term of the employment
agreement between the Company and such officer.
(21) For a period of three years from the date on which the
Registration Statement becomes effective under the Securities Act, the
Representative shall have the right to appoint a designee as an observer of the
Company's Board of Directors. Such observer will have the right to attend all
meetings of the Board of Directors. Such observer shall be entitled to receive
reimbursement for all out-of-pocket expenses incurred in attending such
meetings, including, but not limited to, food, lodging, transportation, and any
fees paid to directors for attending meetings. The Representative shall be
given notice of such meetings at the same time and in the same manner as
directors of the Company are informed. The Representative and such observer
shall be indemnified to the same extent as the other directors. The Company
will purchase directors and officers insurance in an amount of not less than
$2,000,000, provided, however, that the Company shall not be required to pay
more than $50,000 per year in order to maintain such insurance, and if insurance
in such amount is not available at such cost, the Company shall purchase that
amount of such insurance which is available at a cost of $50,000 per year.
(b) The Selling Stockholder covenants that it will not:
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(1) For a period of 18 months from the date on which the
Registration Statement shall become effective under the Securities Act, without
the prior written consent of Hampshire, offer, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or indirectly, any
shares of Common Stock (other than the Stockholder Additional Stock upon
exercise of the Stockholder Over-allotment Option) or any security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, shares of Common Stock or other securities of the Company,
including, without limitation, any shares of Common Stock issuable pursuant to
the terms of any employee stock options.
(2) Take, directly or indirectly, prior to the termination of
the offering contemplated by this Agreement, any action designed to stabilize or
manipulate the price of any security of the Company, or which might in the
future reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company, to facilitate the sale
or resale of any of the Stock.
6. PAYMENT OF EXPENSES. The Company hereby agrees to pay all expenses
(other than fees of counsel for the Underwriters, except as provided in Section
6(c)) in connection with (a) the preparation, printing, filing, distribution,
and mailing of the Registration Statement and the Prospectus and the printing,
filing, distribution, and mailing of this Agreement and the Master Agreement
Among Underwriters, any Master Selected Dealer Agreement and related documents,
including the cost of all copies thereof and of the Preliminary Prospectuses and
of the Prospectus and any amendments or supplements thereto supplied to the
Underwriters in quantities as hereinabove stated; (b) the issuance, sale,
transfer, and delivery (as applicable) of the Securities, including any transfer
or other taxes payable thereon; (c) the qualification of the Securities under
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state or foreign "blue sky" or securities laws, including the costs of printing
and mailing the preliminary and final "Blue Sky Survey" and the fees of counsel
for the Underwriters of $25,000 ($35,000 if Nasdaq National Market listing is
not obtained) plus disbursements in connection therewith, payable as follows:
(i) $10,000 of the fee upon the engagement by Hampshire, (ii) $10,000 of the fee
upon the filing of the Registration Statement and (iii) the balance of the fee
on the Closing Date; (d) the filing fees payable to the Commission, the NASD,
and the jurisdictions in which such qualification is sought; (e) any fees
relating to the listing of the Common Stock on the Nasdaq National Market and
any other stock market or exchange; (f) the cost of printing certificates
representing the shares of Common Stock; (g) the fees of the transfer agent for
the Common Stock, (h) the cost of publication of "tombstone" advertisements with
respect to offerings, not to exceed $25,000; and (i) a non-accountable expense
allowance equal to three percent of the gross proceeds of the sale of the Firm
Stock and the Company Additional Stock (less amounts, if any, previously paid to
the Representative by the Company in respect of such non-accountable expense
allowance) to the Representative on the Closing Date. Notwithstanding the
foregoing, if the offering contemplated hereby should be terminated, the Company
agrees to pay the Representative only the out-of-pocket expenses incurred by the
Underwriters in connection with this Agreement or the proposed offer, sale, and
delivery of the Securities.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Firm Stock and the Additional
Stock, as provided herein, and the obligation of Hampshire to purchase and pay
for the Underwriter's Warrants, each as provided herein, shall be subject, in
the discretion of the Representative, to the continuing accuracy
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of the representations and warranties of the Company contained herein and in
each certificate and document contemplated under this Agreement to be delivered
to the Underwriters, as of the date hereof and as of the Closing Date (or any
Additional Closing Date, as the case may be), to the performance by the Company
and the Selling Stockholder, as applicable, of their respective obligations
hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective under the
Securities Act not later than 6:00 P.M., New York City local time, on the date
of this Agreement or such later date and time as shall be consented to in
writing by the Representative; on or prior to the Closing Date, or any
Additional Closing Date, as the case may be, no Stop Order shall have been
issued and no proceeding shall have been initiated or threatened with respect to
a Stop Order; and any request by the Commission for additional information shall
have been complied with by the Company to the reasonable satisfaction of counsel
for the Underwriters. If required, the Prospectus shall have been filed with
the Commission in the manner and within the time period required by Rule 424(b)
under the Securities Act.
(b) (1) At the Closing Date and any Additional Closing Date, as
the case may be, the Underwriters shall have received the opinion of Crummy,
Del Deo, Dolan, Griffinger & Vecchione, P.C., counsel for the Company, dated
the date of delivery, addressed to the Underwriters, and in form and scope
satisfactory to counsel for the Underwriters, with reproduced copies or
signed counterparts thereof for each of the Underwriters, to the effect that:
(i) the Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and
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permits of and from, and declarations and filings with, all federal, state,
local, and other governmental authorities and all courts and other tribunals,
to own, lease, license, and use its properties and assets and to conduct its
business in the manner described in the Prospectus. The Company is duly
qualified to do business as a foreign corporation and is in good standing as
such in every jurisdiction in which its ownership, leasing, licensing, or use
of property and assets or the conduct of its business makes such
qualification necessary;
(ii) the authorized capital stock of the Company consists of
(i) 10,000,000 shares of Common Stock, of which 3,500,000 shares are
outstanding, (ii) 1,000,000 shares of Preferred Stock, par value $.01 per share,
none of which is outstanding, and (iii) 118,100 shares of Series A Cumulative
Redeemable Preferred Stock, of which 118,100 is outstanding. Except as
otherwise disclosed in the Prospectus, each outstanding share of capital stock
of the Company is free and clear of all liens, security interests, pledges,
charges, encumbrances, stockholders' agreements, and voting trusts. Except as
disclosed in the Prospectus, each outstanding share of Common Stock is validly
authorized and issued, fully paid, and nonassessable, without any personal
liability attaching to the ownership thereof, has not been issued and is not
owned or held in violation of any preemptive or similar rights of stockholders.
To the knowledge of such counsel, there is no commitment, plan, or arrangement
to issue, and no outstanding option, warrant, or other right calling for the
issuance of, any share of capital stock of the Company or any security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company except as may be properly
described in the Prospectus. There is outstanding no security or other
instrument which by its terms is convertible into, or exercisable
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or exchangeable for, capital stock of the Company. The certificates evidencing
the Common Stock are in due and proper form;
(iii) to the knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other proceeding (formal or
informal), or investigation pending, threatened, or in prospect (or any basis
therefor) with respect to the Company or any of its operations, businesses,
properties, or assets, except as may be properly described in the Prospectus or
such as individually or in the aggregate do not now have, and will not in the
future have, a material adverse effect upon the operations, business,
properties, or assets of the Company. To the knowledge of such counsel, the
Company is not in violation of, or in default with respect to, any law, rule,
regulation, order, judgment, or decree, except as may be properly described in
the Prospectus or such as in the aggregate do not now have and will not in the
future have a material adverse effect upon the operations, business, properties,
or assets of the Company; nor is the Company required to take any action in
order to avoid any such violation or default;
(iv) to the knowledge of such counsel, neither the Company
nor any other party is now, or is expected by the Company to be, in violation or
breach of, or in default with respect to, any provision of any contract,
agreement, instrument, lease, license, arrangement, or understanding which is
material to the Company, and, to the knowledge of such counsel, each such
contract, agreement, instrument, lease, license, arrangement, or understanding
is in full force and effect and is the valid, legal, and binding obligation of
the parties thereto and is enforceable in accordance with its terms;
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(v) the Company is not in violation or breach of, or in
default with respect to, any term of its respective certificate of incorporation
(or other charter document) or by-laws;
(vi) the Company has all requisite power and authority to
execute, deliver, and perform this Agreement and the Underwriter's Warrants.
All necessary corporate proceedings of the Company have been taken to authorize
the execution, delivery, and performance by the Company of this Agreement and
the Underwriter's Warrants. This Agreement has been duly authorized, executed,
and delivered by the Company, is the legal, valid, and binding obligation of the
Company, and, subject to applicable bankruptcy, insolvency, and other laws
affecting the enforceability of creditors' rights generally, is enforceable as
to the Company in accordance with its terms. The Underwriter's Warrants have
been duly authorized by the Company and, when executed and delivered by the
Company, will be legal, valid, and binding obligations of the Company, each
enforceable as to the Company in accordance with its terms. No consent,
authorization, approval, order, license, certificate, or permit of or from, or
declaration or filing with, any federal, state, local, or other governmental
authority or any court or other tribunal is required by the Company for the
execution, delivery, or performance by the Company of this Agreement or the
Underwriter's Warrants, except filings under the Securities Act which have been
made prior to the Closing Date or Additional Closing Date, as the case may be,
and consents consisting only of consents under "blue sky" or securities laws,
which have been obtained. No consent of any party to any contract, agreement,
instrument, lease, license, arrangement, or understanding known to such counsel
to which the Company is a party, or to which any of its properties or assets are
subject, is required for the execution, delivery, or performance of this
Agreement and the Underwriter's
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Warrants; and the execution, delivery, and performance of this Agreement and the
Underwriter's Warrants will not violate, result in a breach of, conflict with,
result in the creation or imposition of any lien, charge, or encumbrance upon
any properties or assets of the Company pursuant to the terms of, or, with or
without the giving of notice or the passage of time or both, entitle any party
to terminate or call a default under, any such contract, agreement, instrument,
lease, license, arrangement, or understanding known to such counsel, violate or
result in a breach of, or conflict with any term of the certificate of
incorporation (or other charter document) or by-laws of the Company, or violate,
result in a breach of, or conflict with any law, rule, regulation, order,
judgment, or decree binding on the Company to which any of its operations,
businesses, properties, or assets are subject;
(vii) each share of Firm Stock to be delivered on the
Closing Date is validly authorized and, when issued and delivered in accordance
with the terms hereof, will be validly issued, fully paid, and nonassessable,
without any personal liability attaching to the ownership thereof, and will not
be issued in violation of any preemptive or similar rights of stockholders.
Each share of Company Additional Stock to be delivered on the Closing Date or
any Additional Closing Date, as applicable, is validly authorized and, when
issued and delivered in accordance with the terms hereof, will be validly
issued, fully paid, and nonassessable, without any personal liability attaching
to the ownership thereof, and will not issued in violation of any preemptive or
similar rights of stockholders. The Underwriters will receive good title to the
shares of Firm Stock and Company Additional Stock purchased by them,
respectively, free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts. The Company
Additional Stock has been duly and validly reserved for issuance. The Stock
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conforms to all statements relating thereto contained in the Registration
Statement or the Prospectus;
(viii) the Warrant Stock is validly authorized and has been
duly and validly reserved for issuance pursuant to the terms of the
Underwriter's Warrants. The Underwriter's Warrants have been duly and validly
issued and delivered. The Warrant Stock, when issued and delivered in
accordance with the Underwriter's Warrants, will be validly issued, fully paid,
and nonassessable, without any personal liability attaching to the ownership
thereof, and will not have been issued in violation of any preemptive rights of
stockholders. The Representative, and any other holders of the Underwriter's
Warrants, will receive good title to the securities purchased by them upon
exercise of the Underwriter's Warrants, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders' agreements, and voting
trusts. The Representative's Securities conform to all statements relating
thereto contained in the Registration Statement or the Prospectus;
(ix) to the knowledge of such counsel, each contract,
agreement, instrument, lease, or license required to be described in the
Registration Statement or the Prospectus has been properly described therein,
and each contract, agreement, instrument, lease, or license required to be filed
as an exhibit to the Registration Statement has been filed with the Commission
as an exhibit to the Registration Statement;
(x) insofar as statements in the Prospectus purport to
summarize the status of litigation or the provisions of laws, rules,
regulations, orders, judgments, decrees, contracts, agreements, instruments,
leases, or licenses, such statements have been prepared or
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reviewed by such counsel and accurately reflect the status of such litigation
and provisions purported to be summarized and are correct in all respects;
(xi) the Company is not an "investment company" as defined
in the Investment Company Act and the rules and regulations thereunder and, if
the Company conducts its business as set forth in the Prospectus, will not
become an "investment company", and will not be required to be registered under
the Investment Company Act;
(xii) to the knowledge of such counsel, no person or entity
has the right to require registration of shares of Common Stock or other
securities of the Company because of the filing or effectiveness of the
Registration Statement, except by entities which have waived such rights as
described in the Registration Statement and the Prospectus;
(xiii) there is no stamp duty, value-added tax or any
similar tax or duty, payable by or on behalf of the Underwriters or the
Company in Hong Kong in connection with the authorization, issuance, sale and
delivery of the Securities to the Underwriters in the manner contemplated by
this Agreement; and
(xiv) the Registration Statement has become effective under
the Securities Act, the Prospectus has been filed in accordance with Rule 424(b)
of the Regulations, including the applicable time periods set forth therein, or
such filing is not required. To the knowledge of such counsel, no Stop Order
has been issued and no proceeding for that purpose has been instituted or
threatened. On the basis of the participation of such counsel in conferences at
which the contents of the Registration Statement and the Prospectus and related
matters were discussed, but without independent verification by such counsel of
the accuracy, completeness, or fairness of the statements contained in the
Registration Statement, the Prospectus, or any
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amendment or supplement thereto, such counsel have no knowledge that (other than
financial statements and other financial data and schedules which are or should
be contained therein, as to which such counsel need express no opinion): (A) the
Registration Statement, any Rule 430A Prospectus, and the Prospectus, and any
amendment or supplement thereto, does not appear on its face to comply as to
form in all material respects with the requirements of the Securities Act and
the Regulations; (B) any of the Registration Statement, any Rule 430A
Prospectus, or the Prospectus, or any amendment or supplement thereto, contains
any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; or (C) since the date of effectiveness under the Securities Act of
the Registration Statement, any event has occurred which should have been set
forth in an amendment or supplement to the Registration Statement or the
Prospectus which has not been set forth in such an amendment or supplement.
In rendering such opinion, counsel for the Company may rely (A) as to
matters involving the application of laws other than the laws of the United
States and the laws of the State of Delaware, to the extent counsel for the
Company deems proper and to the extent specified in such opinion, upon an
opinion or opinions (in form and substance satisfactory to counsel for the
Underwriters) of other counsel, acceptable to counsel for the Underwriters,
familiar with the applicable laws, in which case the opinion of counsel for the
Company shall state that the opinion or opinions of such other counsel are
satisfactory in scope, form, and substance to counsel for the Company and that
reliance thereon by counsel for the Company and the Underwriters is reasonable;
(B) as to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company; and (C) to the extent they deem proper,
upon written statements or certificates of
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officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company; provided
that copies of any such opinions, certificates, or statements shall be annexed
as exhibits to the opinion of counsel for the Company.
(2) At any Additional Closing Date, the Representative
shall have received the favorable opinion of Crummy, Del Deo, Griffinger &
Vecchione, P.C., counsel for the Selling Stockholder, dated the date of
delivery, addressed to the Underwriters, and in form and scope satisfactory
to counsel for the Underwriters, with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that:
(i) The Selling Stockholder has all requisite power and
authority to execute, deliver, and perform this Agreement its respective
Custodial Agreement. This Agreement and the Custodial Agreement have each
been duly executed and delivered by the Selling Stockholder, are the legal,
valid, and binding obligation of the Selling Stockholder, and are each
enforceable as to the Selling Stockholder in accordance with its respective
terms.
(ii) To the knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other proceeding (formal or
informal), or investigation pending, threatened, or in prospect (or any basis
therefor) with respect to the Selling Stockholder or any of the Selling
Stockholder's business, properties, or assets, which, if determined adversely to
the Selling Stockholder, would have a material adverse effect on the Selling
Stockholder's business, properties or assets of the Selling Stockholder. The
Selling Stockholder is not in violation of, or in default with respect to, any
law, rule, regulation, order, judgment, or decree; nor is the Selling
Stockholder required to take any action in order to avoid such violation or
default.
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(iii) Each share of Stockholder Additional Stock is validly
authorized and issued, fully paid, and nonassessable, without any personal
liability attaching to the ownership thereof, and has not been issued and is not
owned or held in violation of any preemptive or similar rights of stockholders.
The Selling Stockholder has good title to the shares of Stockholder Additional
Stock to be sold thereby pursuant to this Agreement, free and clear of all
liens, security interests, pledges, charges, encumbrances, stockholders'
agreements, and voting trusts. When delivered in accordance with the terms of
this Agreement, the Underwriters shall receive good title to the Stockholder
Additional Stock purchased by them from the Selling Stockholder, free and clear
of all liens, security interests, pledges, charges, encumbrances, stockholders'
agreements, and voting trusts.
In rendering such opinion, counsel for the Selling Stockholder may rely (A)
as to matters involving the application of laws other than the laws of the
United States and the laws of the State of Delaware, to the extent counsel for
the Selling Stockholder deems proper and to the extent specified in such
opinion, upon an opinion or opinions (in form and substance satisfactory to
counsel for the Underwriters) of other counsel, acceptable to counsel for the
Underwriters, familiar with the applicable laws, in which case the opinion of
counsel for the Selling Stockholder shall state that the opinion or opinions of
such other counsel are satisfactory in scope, form, and substance to counsel for
the Selling Stockholder and that reliance thereon by counsel for the Selling
Stockholder and counsel for the Underwriters is reasonable; and (B) as to
matters of fact, to the extent proper, on certificates of responsible officers
of the Company; provided, that copies of any such opinions, certificates, or
statements shall be annexed as exhibits to the opinion of counsel for the
Selling Stockholder.
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(c) On or prior to the Closing Date and any Additional Closing Date,
as the case may be, the Underwriters shall have been furnished such information,
documents, certificates, and opinions as they may reasonably require for the
purpose of enabling them to review the matters referred to in Section 7(b), and
in order to evidence the accuracy, completeness, or satisfaction of any of the
representations, warranties, covenants, agreements, or conditions herein
contained, or as the Representative may reasonably request.
(d) At the Closing Date or any Additional Closing Date, as the case
may be, (i) the Registration Statement and the Prospectus and any amendments or
supplements thereto shall contain all statements which are required to be stated
therein in accordance with the Securities Act and the Regulations, and in all
material respects conform to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) there shall have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, no material adverse change, or any development involving a
prospective material adverse change, in the business, properties, or condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt, or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and Prospectus indicate might occur after the date on which the
Registration Statement becomes effective under the Securities Act, and the
Company shall not have incurred any material liabilities or entered into any
agreements not in the ordinary course of business other than as referred to in
the Registration Statement and Prospectus, (iii) except as set forth in the
Prospectus,
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no litigation, arbitration, claim, governmental or other proceeding (formal or
informal), or investigation shall be pending, threatened, or in prospect (or any
basis therefor) with respect to the Company or any of its operations,
businesses, properties, or assets which would be required to be set forth in the
Registration Statement, wherein an unfavorable decision, ruling, or finding
would materially adversely affect the business, property, condition (financial
or otherwise), results of operations, or general affairs of the Company and (iv)
the Stock be quoted upon the Nasdaq National Market.
(e) At the Closing Date and any Additional Closing Date, as the case
may be, the Representative shall have received a certificate of the chief
executive officer, the chief financial officer, and the chief accounting officer
of the Company, dated the Closing Date or such Additional Closing Date, as the
case may be, to the effect, among other things, that (i) the conditions set
forth in Sections 7(a) and 7(d) have been satisfied, (ii) as of the date of this
Agreement and as of the Closing Date or such Additional Closing Date, as the
case may be, the representations and warranties of the Company contained herein
were and are accurate and correct in all materials respects, and (iii) as of the
Closing Date or such Additional Closing Date, as the case may be, the
obligations to be performed by the Company hereunder on or prior to such time
have been fully performed. At each Additional Closing Date, the Representative
shall have received a certificate of a duly appointed attorney-in-fact for the
Selling Stockholder, dated such Additional Closing Date, that, as of the date of
this Agreement and such Additional Closing Date, the representations and
warranties of the Selling Stockholder contained herein were and are accurate and
correct in all material respects, and that as of such Additional Closing Date,
the obligations to be performed by the Selling Stockholder hereunder on or prior
thereto have been fully performed.
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(f) At the time this Agreement is executed and at the Closing Date
and any Additional Closing Date, as the case may be, the Representative shall
have received a letter, addressed to the Underwriters, and in form and substance
satisfactory to the Representative, with reproduced copies or signed
counterparts thereof for each of the Underwriters, from Richard A. Eisner &
Company, LLP, independent certified public accountants for the Company, dated
the date of delivery:
(i) confirming that they are, and during the period covered by
their report(s) included in the Registration Statement and the Prospectus were,
independent certified public accountants with respect to the Company within the
meaning of the Securities Act and the published Regulations and stating that the
answer to Item 10 of the Registration Statement is correct insofar as it relates
to them;
(ii) stating that, in their opinion, the financial statements and
schedules of the Company included in the Registration Statement examined by them
comply in form in all material respects with the applicable accounting
requirements of the Securities Act and the related published rules and
regulations;
(iii) stating that, on the basis of procedures (but not an
examination made in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the stockholders and Boards of Directors of the Company and
committees of such Board of Directors, inquiries to certain officers and other
employees of the Company responsible for financial and accounting matters, and
other specified procedures and inquiries, nothing has come
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to their attention that caused them to believe that: (A) the unaudited financial
statements and schedules of the Company included in the Registration Statement
and Prospectus do not comply in form in all material respects with the
applicable accounting requirements of the Securities Act and the Exchange Act
and the related published rules and regulations under the Securities Act or the
Exchange Act or are not fairly presented in conformity with generally accepted
accounting principles (except to the extent that certain footnote disclosures
regarding any stub period may have been omitted in accordance with the
applicable rules of the Commission under the Exchange Act) applied on a basis
consistent with that of the audited financial statements appearing therein; (B)
there was any change in the capital stock or long-term debt of the Company or
any decrease in the net current assets or stockholders' equity of the Company as
of the date of the latest available monthly financial statements of the Company
as of a specified date not more than five business days prior to the date of
such letter, each as compared with the amounts shown in the June 30, 1996 and
December 31, 1996 balance sheets included in the Registration Statement and
Prospectus, other than as properly described in the Registration Statement and
Prospectus or any change or decrease (which shall be set forth therein) which,
in the sole discretion of the Representative, the Representative shall accept,
or (C) there was any decrease in net sales, net earnings, or net earnings per
share of Common Stock during the period from June 30, 1996 and December 31, 1996
and to the date of the latest available monthly financial statements of the
Company or to a specified date not more than five business days prior to the
date of such letter, each as compared with the corresponding period in 1996,
other than as properly described in the Registration Statement and Prospectus or
any decrease (which shall be set forth therein) which, the sole discretion of
the Representative, the Representative shall accept; and
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(iv) stating that they have compared specific numerical data and
financial information pertaining to the Company set forth in the Registration
Statement, which have been specified by the Representative prior to the date of
this Agreement, to the extent that such data and information may be derived from
the general accounting records of the Company, and excluding any questions
requiring an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate procedures
(which procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
(g) All proceedings taken in connection with the issuance, sale,
transfer, and delivery of the Securities shall be satisfactory in form and
substance to the Representative and to counsel for the Underwriters, and the
Underwriters shall have received from such counsel for the Underwriters the
opinion, dated as of the Closing Date and the Additional Closing Date, as the
case may be, with respect to such of the matters set forth under Section 7(b),
and with respect to such other related matters, as the Representative may
reasonably request.
(h) The NASD, upon review of the terms of the public offering of the
Stock shall not have objected to the Underwriters' participation in such
offering.
(i) Prior to or on the Closing Date, the Company shall have entered
into the Underwriter's Warrants with the Representative.
(j) Prior to or on the Closing Date, the Company shall have provided
to the Representative copies of the agreements referred to in Section 2(a)(18).
Any certificate or other document signed by any officer of the Company and
delivered to the Representative or to counsel for the Underwriters shall be
deemed a representation and warranty
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by the Company hereunder to the Underwriters as to the statements made therein.
Any certificate or other document signed by, or on behalf of, the Selling
Stockholder and delivered to the Underwriters or to counsel for the
Representative shall be deemed a representation and warranty by the Selling
Stockholder hereunder to the Underwriters as to the statement made therein. If
any condition to the Underwriters' obligations hereunder to be fulfilled prior
to or at the Closing Date or any Additional Closing Date, as the case may be, is
not so fulfilled, the Representative may, on behalf of the several Underwriters,
terminate this Agreement or, if the Representative so elects, in writing waive
any such conditions which have not been fulfilled or extend the time for their
fulfillment.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Underwriter, its officers, directors, partners,
employees, agents, and counsel, each of the Selling Stockholder, and each
person, if any, who controls any Underwriter or the Selling Stockholder within
the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, against any and all loss, liability, claim, damage, and expense whatsoever
(which shall include, for all purposes of this Section 8, but not be limited to,
attorneys' fees and any and all expense whatsoever incurred in investigating,
preparing, or defending against any litigation, commenced or threatened, or any
claim whatsoever and any and all amounts paid in settlement of any claim or
litigation) as and when incurred arising out of, based upon, or in connection
with, (i) any untrue statement or alleged untrue statement of a material fact
contained in (A) the Registration Statement, any Preliminary Prospectus, or the
Prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto or (B) any application or other document
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or communication (for purposes of this Section 8, collectively referred to as an
"application") executed by, or on behalf of, the Company or based upon written
information furnished by, or on behalf of, the Company filed in any jurisdiction
in order to qualify the Securities under the "blue sky" or securities laws
thereof or filed with the Commission or any securities exchange; or any omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless such statement
or omission was made in reliance upon, and in conformity with, written
information furnished to the Company as stated in Section 8(b) with respect to
any Underwriter by, or on behalf of, such Underwriter through the Representative
or as stated in Section 8(c) with respect to the Selling Stockholder by, or on
behalf of, the Selling Stockholder expressly for inclusion in the Registration
Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or
supplement thereto, or in any application, as the case may be, or (ii) any
breach of any representation, warranty, covenant, or agreement of the Company
contained in this Agreement. The foregoing agreement to indemnify shall be in
addition to any liability the Company may otherwise have, including liabilities
arising under this Agreement.
If any action is brought against an Underwriter or any of its respective
officers, directors, partners, employees, agents, or counsel, the Selling
Stockholder, or any controlling persons of an Underwriter or the Selling
Stockholder (an "indemnified party") in respect of which indemnity may be
sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of
the institution of such action (but the failure so to notify shall not
relieve the Company from any liability it may have other than pursuant to
this Section 8(a)) and the Company shall promptly assume the defense of such
action, including, without limitation, the employment of counsel satisfactory
to such indemnified party or parties and
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payment of expenses. Such indemnified party or parties shall have the right to
employ its or their own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party or parties unless
the employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action or the Company shall not
have promptly employed counsel satisfactory to such indemnified party or parties
to have charge of the defense of such action or such indemnified party or
parties shall have concluded that there may be one or more legal defenses
available to it or them or to other indemnified parties which are different
from, or in addition to, those available to the Company, in any of which events
such fees and expenses shall be borne by the Company, and the Company shall not
have the right to direct the defense of such action on behalf of the indemnified
party or parties. Anything in this paragraph to the contrary notwithstanding,
the Company shall not be liable for any settlement of any such claim or action
effected without its written consent, which consent shall not be unreasonably
withheld. The Company shall not, without the prior written consent of each
indemnified party that is not released as described in this sentence, settle or
compromise any action, or permit a default or consent to the entry of judgment
or otherwise seek to terminate any pending or threatened action, in respect of
which indemnity may be sought hereunder (whether or not any indemnified party is
a party thereto), unless such settlement, compromise, consent, or termination
includes an unconditional release of each indemnified party from all liability
in respect of such action. The Company agrees promptly to notify the
Underwriters and the Selling Stockholder of the commencement of any litigation
or proceedings against the Company or any of its officers or directors in
connection with the sale of the Securities, the Registration Statement, any
Preliminary Prospectus, or the Prospectus, or any amendment or supplement
thereto, or any application.
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(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, the Selling Stockholder, each director of the Company, each
officer of the Company who shall have signed the Registration Statement, and
each other person, if any, who controls the Company or the Selling Stockholder
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
the several Underwriters and the Selling Stockholder in Section 8(a), but only
with respect to statements or omissions, if any, made in the Registration
Statement, any Preliminary Prospectus, or the Prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, or in any
application, in reliance upon, and in conformity with, written information
furnished to the Company as stated in this Section 8(b) with respect to any
Underwriter by, or on behalf of, such Underwriter through the Representative
expressly for inclusion in the Registration Statement, any Preliminary
Prospectus, or the Prospectus, or any amendment or supplement thereto, or on any
application, as the case may be; provided, however, that the obligation of each
Underwriter to provide indemnity under the provisions of this Section 8(b) shall
be limited to the amount which represents the product of (i) the number of
shares of Stock underwritten by such Underwriter hereunder and the (ii) the
underwriting discount per share of Common Stock set forth on the cover page of
the Prospectus. For all purposes of this Agreement, the amounts of the selling
concession and reallowance and the name of each of the Underwriters, and the
number of shares of Firm Stock purchased by each of the Underwriters set forth
in the Prospectus constitute the only information furnished in writing by, or on
behalf of, such Underwriter expressly for inclusion in the Registration
Statement, any Preliminary Prospectus, or the Prospectus (as from time to time
amended or supplemented), or any amendment or supplement
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thereto, or in any application, as the case may be. If any action shall be
brought against the Company, the Selling Stockholder, or any other person so
indemnified based on the Registration Statement, any Preliminary Prospectus, or
the Prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against any Underwriter pursuant
to this Section 8(b), such Underwriter shall have the rights and duties given to
the Company, and the Company, the Selling Stockholder, and each other person so
indemnified shall have the rights and duties given to the indemnified parties,
by the provisions of Section 8(a).
(c) The Selling Stockholder agrees to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company who
shall have signed the Registration Statement, each Underwriter, each officer,
director, partner, employee, agent, and counsel of each Underwriter, and each
other person, if any, who controls the Company or any Underwriter within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, to the same extent as the foregoing indemnity from the Company to the
several Underwriters in Section 8(a), but only with respect to (i) statements
or omissions, if any, made in the Registration Statement, any Preliminary
Prospectus, or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in any application
in reliance upon, and in conformity with, written information furnished to
the Company by, or on behalf of, the Selling Stockholder expressly for
inclusion in the Registration Statement, any Preliminary Prospectus, or the
Prospectus, or any amendment or supplement thereto, or in any application, as
the case may be, or (ii) any breach of any representation, warranty,
covenant, or agreement of the Selling Stockholder contained in this Agreement.
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In case any action shall be brought against the Company, any Underwriter, or
any other person so indemnified based on the Registration Statement, any
Preliminary Prospectus, or the Prospectus, or any amendment or supplement
thereto, or on any application, or with respect to any such breach, and in
respect of which indemnity may be sought against the Selling Stockholder, the
Selling Stockholder shall have the rights and duties given to the Company,
and the Company, the Underwriters, and each other person so indemnified shall
have the rights and duties given to the indemnified parties, by the
provisions of Section 8(a).
(d) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 8(a),
8(b), 8(c) (subject to the limitations thereof) but it is found in a final
judicial determination, not subject to further appeal, that such indemnification
may not be enforced in such case, even though this Agreement expressly provides
for indemnification in such case or (ii) any indemnified or indemnifying party
seeks contribution under the Securities Act, the Exchange Act, or otherwise,
then the Company (including for this purpose any contribution made by, or on
behalf of, any director of the Company, any officer of the Company who signed
the Registration Statement, and any controlling person of the Company), as one
entity, the Selling Stockholder, as a second entity, and the Underwriters
(including for this purpose any contribution by, or on behalf of, an indemnified
party) as a third entity, shall contribute to the losses, liabilities, claims,
damages, and expenses whatsoever to which any of them may be
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subject, so that the Underwriters, in the aggregate, are responsible for the
proportion thereof equal to the percentage which the underwriting discount per
share of Common Stock set forth on the cover page of the Prospectus represents
of the initial public offering price per share of Common Stock set forth on the
cover page of the Prospectus and the Company and the Selling Stockholder are
responsible for the remaining portion; provided, however, that if applicable law
does not permit such allocation, then other relevant equitable considerations
such as the relative fault of the Company, the Selling Stockholder, and the
Underwriters in connection with the facts which resulted in such losses,
liabilities, claims, damages, and expenses shall also be considered. The
relative fault, in the case of an untrue statement, alleged untrue statement,
omission, or alleged omission, shall be determined by, among other things,
whether such statement, alleged statement, omission, or alleged omission relates
to information supplied by the Company, by the Selling Stockholder, or by the
Underwriters, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement, alleged
statement, omission, or alleged omission. The Company, the Selling Stockholder,
and the Underwriters agree that it would be unjust and inequitable if the
respective obligations of the Company, the Selling Stockholder, and the
Underwriters for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages, and expenses
(even if the Underwriters and the other indemnified parties were treated as one
entity for such purpose) or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 8(d). No
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation. For purposes of this
Section 8(d), each person, if any, who controls any
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Underwriter within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act and each officer, director, partner, employee, agent,
and counsel of any Underwriter shall have the same rights to contribution as
such Underwriter, each person, if any, who controls the Selling Stockholder
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, shall have the same rights to contribution as the Selling
Stockholder, and each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the provisions of this
Section 8(d). Anything in this Section 8(d) to the contrary notwithstanding, no
party shall be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 8(d) is
intended to supersede any right to contribution under the Securities Act, the
Exchange Act, or otherwise.
9. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Stock or Additional Stock hereunder, and if the
number of shares of Firm Stock or Additional Stock to which the defaults of all
Underwriters in the aggregate relate does not exceed 10% of the number of shares
of Firm Stock or Additional Stock, as the case may be, which all Underwriters
have agreed to purchase hereunder, then such shares of Firm Stock or Additional
Stock to which such defaults relate shall be purchased by the non-defaulting
Underwriters in proportion to their respective commitments hereunder.
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(b) If such defaults exceed in the aggregate 10% of the number of
shares of Firm Stock or Additional Stock, as the case may be, which all
Underwriters have agreed to purchase hereunder, the Representative may, in its
discretion, arrange to purchase itself or for another party or parties to
purchase such shares of Firm Stock or Additional Stock, as the case may be, to
which such default relates on the terms contained herein. If the Representative
does not arrange for the purchase of such shares of Firm Stock or Additional
Stock, as the case may be, within one business day after the occurrence of
defaults relating to in excess of 10% of the Firm Stock or the Additional Stock,
as the case may be, then the Company (with respect to the Firm Stock and the
Company Additional Stock) and the Selling Stockholder (with respect to the
Stockholder Additional Stock) shall be entitled to a further period of one
business day within which to procure another party or parties satisfactory to
the Representative to purchase such shares of Firm Stock or Additional Stock, as
the case may be, on such terms. If the Representative or the Company (with
respect to the Firm Stock and the Company Additional Stock) or the
Representative or the Selling Stockholder (with respect to the Stockholder
Additional Stock) do not arrange for the purchase of the shares of Firm Stock or
Additional Stock, as the case may be, to which such defaults relate as provided
in this Section 9(b), this Agreement may be terminated by the Representative or
by the Company (with respect to the Firm Stock and the Company Additional Stock)
or the Representative or the Selling Stockholder (with respect to the
Stockholder Additional Stock), in each case without liability on the part of the
Company or the Selling Stockholder (except that the provisions of Sections
5(a)(1), 6, 8, 10, and 13 shall survive such termination) or the several
Underwriters, but nothing in this Agreement shall relieve a defaulting
Underwriter of its liability, if any, to the other several
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Underwriters and to the Company and the Selling Stockholder for any damages
occasioned by its default hereunder.
(c) If the shares of Stock or Additional Stock to which such defaults
relate are to be purchased by the non-defaulting Underwriters, or are to be
purchased by another party or parties as aforesaid, the Representative or the
Company (with respect to the Firm Stock and the Company Additional Stock) or the
Representative or the Selling Stockholder (with respect to the Stockholder
Additional Stock) shall have the right to postpone the Closing Date or the
Additional Closing Date, as the case may be, for a reasonable period but not in
any event more than seven business days in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus or in
any other documents and arrangements with respect to the Firm Stock or the
Additional Stock, and the Company agrees to prepare and file promptly any
amendment or supplement to the Registration Statement or the Prospectus which in
the opinion of counsel for the Underwriters may thereby be made necessary. The
term "Underwriter" as used in this Agreement shall include any party substituted
under this Section 9 as if such party had originally been a party to this
Agreement and had been allocated the number of shares of Firm Stock and
Additional Stock actually purchased by it as a result of its original commitment
to purchase Firm Stock and Additional Stock and its purchase of shares of Firm
Stock or Additional Stock pursuant to this Section 9.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters,
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the Company, and the Selling Stockholder, including the indemnity and
contribution agreements contained in Section 8, shall remain operative and in
full force and effect regardless of any investigation made by, or on behalf of,
any Underwriter or any indemnified person, or by, or on behalf of, the Company,
the Selling Stockholder, or any person or entity which is entitled to be
indemnified under Section 8(b), and shall survive termination of this Agreement
or the delivery of the Firm Stock and the Additional Stock, if any, to the
several Underwriters. In addition, the provisions of Sections 5(a)(1), 6, 8,
10, 11, and 13 shall survive termination of this Agreement, whether such
termination occurs before or after the Closing Date or any Additional Closing
Date. Notwithstanding anything in the second sentence of Section 6 hereof to
the contrary, and in addition to the obligations assumed by the Company pursuant
to the first sentence of Section 6 hereof, if the offering should be terminated,
the Company shall be liable to the Underwriters only for out-of-pocket expenses
incurred by the Underwriters in connection with this Agreement or the proposed,
offer, sale, and delivery of the Securities.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective at 9:30 A.M., New York City
local time, on the first full business day following the day on which the
Registration Statement becomes effective under the Securities Act or at the time
of the initial public offering by the Underwriters of the Firm Stock, whichever
is earlier. The time of the initial public offering shall mean the time, after
the Registration Statement becomes effective under the Securities Act, of the
release by the Representative for publication of the first newspaper
advertisement which is subsequently published relating to the Firm Stock or the
time, after the Registration Statement becomes effective under the Securities
Act, when the Firm Stock is first released by the Representative for offering
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by the Underwriters or dealers by letter or telegram, whichever shall first
occur. The Representative or the Company may prevent this Agreement from
becoming effective without liability of any party to any other party, except as
noted below in this Section 11, by giving the notice indicated in Section 11(d)
before the time this Agreement becomes effective under the Securities Act.
(b) If the purchase price of the Firm Stock has not been determined
as provided for in Section 3 prior to 4:30 p.m., New York City local time, on
the fifth full business day after the date on which the Registration Statement
becomes was declared effective under the Securities Act, this Agreement may be
terminated at any time thereafter either by the Representative or by the Company
by giving notice to the other unless before such termination the purchase price
for the Firm Stock has been so determined. If the purchase price of the Firm
Stock has not been so determined prior to 4:30 p.m., New York City local time,
on the tenth full business day after the date on which the Registration
Statement was declared effective under the Securities Act, this Agreement shall
automatically terminate forthwith.
(c) In addition to the right to terminate this Agreement pursuant to
Sections 7 and 9 hereof, the Representative shall have the right to terminate
this Agreement at any time prior to the Closing Date or any Additional Closing
Date, as the case may be, by giving notice to the Company, and, if exercised,
the Over-allotment Options, at any time prior to any Additional Closing Date, by
giving notice to the Company and the Selling Stockholder, (i) if any domestic or
international event, act, or occurrence has materially and adversely disrupted,
or, in the opinion of the Representative, will in the immediate future
materially and adversely disrupt, the securities markets; or (ii) if there shall
have been a general suspension of, or a general limitation on prices
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for, trading in securities on the New York Stock Exchange or the American Stock
Exchange or in the over-the-counter market; or (iii) if there shall have been an
outbreak or increase in the level of major hostilities or other national or
international calamity; or (iv) if a banking moratorium has been declared by a
state or federal authority; or (v) if a moratorium in foreign exchange trading
by major international banks or persons has been declared; or (vi) if there
shall have been a material interruption in the mail service or other means of
communication within the United States; or (vii) if the Company shall have
sustained a material or substantial loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage, or other calamity or malicious act, whether or not
such loss shall have been insured, or from any labor dispute or court or
government action, order, or decree, which will, in the opinion of the
Representative, make it inadvisable to proceed with the offering, sale, or
delivery of the Firm Stock or the Additional Stock, as the case may be; or
(viii) if any material governmental restrictions shall have been imposed on
trading in securities in general, which restrictions are not in effect on the
date hereof; or (ix) if there shall be passed by the Congress of the United
States or by any state legislature any act or measure, or adopted by any
governmental body or authoritative accounting institute or board, or any
governmental executive, any orders, rules, or regulations, which the
Representative believes likely to have a material adverse effect on the
business, financial condition, or financial statements of the Company or the
market for the Common Stock; or (x) if there shall have been such material and
adverse change in the market for the Company's securities or securities in
general or in political, financial, or economic conditions as in the judgment of
the Representative makes it inadvisable to proceed with the offering, sale, and
delivery of the Firm Stock or the Additional Stock, as the case may be, on the
terms contemplated by the Prospectus.
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(d) If the Representative elects to prevent this Agreement from
becoming effective, as provided in this Section 11, or to terminate this
Agreement pursuant to Section 7 of this Agreement or this Section 10, the
Representative shall notify the Company and the Selling Stockholder promptly by
telephone, telex, or telegram, confirmed by letter. If, as so provided, the
Company elects to prevent this Agreement from becoming effective or to terminate
this Agreement, the Company shall notify the Representative and the Selling
Stockholder promptly by telephone, telex, or telegram, confirmed by letter.
(e) Anything in this Agreement to the contrary notwithstanding other
than Section 11(f), if this Agreement shall not become effective by reason of an
election pursuant to this Section 11 or if this Agreement shall terminate or
shall otherwise not be carried out within the time specified herein by reason of
any failure on the part of the Company or the Selling Stockholder to perform any
covenant or agreement or satisfy any condition of this Agreement by it to be
performed or satisfied, the sole liability of the Company or the Selling
Stockholder to the several Underwriters, in addition to the obligations the
Company and the Selling Stockholder assumed pursuant to the first sentence of
Section 6, will be to reimburse the several Underwriters for such out-of-pocket
expenses (including the fees and disbursements of their counsel) as shall have
been incurred by them in connection with this Agreement or the proposed offer,
sale, and delivery of the Securities, and, upon demand, the Company and the
Selling Stockholder, severally, agrees to pay promptly the full amount thereof
to the Representative for the respective accounts of the Underwriters. Anything
in this Agreement to the contrary notwithstanding other than Section 11(f), if
this Agreement shall not be carried out within the time specified herein for any
reason other than the failure on the part of the Company or the Selling
Stockholder to perform any covenant or
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agreement or satisfy any condition of this Agreement by it to be performed or
satisfied, the Company and the Selling Stockholder shall have no liability to
the several Underwriters other than for obligations assumed by the Company and
the Selling Stockholder pursuant to Section 6.
(f) Notwithstanding any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 5(a)(1), 6, 8, 10, and 13 shall not be in any way
affected by such election or termination or failure to carry out the terms of
this Agreement or any part hereof. Notwithstanding anything in the second
sentence of Section 6 hereof to the contrary, and in addition to the obligations
assumed by the Company pursuant to the first sentence of Section 6 hereof, if
the offering should be terminated, the Company shall be liable to the several
Underwriters only for out-of-pocket expenses incurred by the several
Underwriters in connection with this Agreement or the proposed, offer, sale, and
delivery of the Securities.
12. NOTICES. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and
confirmed by letter, to such Underwriter, c/o Hampshire Securities
Corporation, 640 Fifth Avenue, New York, New York 10019, Attention: Mr.
Richard K. Abbe, Managing Director, with a copy to Morrison Cohen Singer &
Weinstein, LLP, 750 Lexington Avenue, New York, New York 10022, Attention:
Robert H. Cohen, Esq.; or if sent to the Company or the Selling Stockholder,
shall be mailed, delivered, or telexed or telegraphed and confirmed by
letter, to the Company, Ambassador Eyewear Group, Inc., 1010 Arch Street,
Philadelphia, Pennsylvania 19107, Attention: Barry Budilov, President, with a
copy to Crummy, Del Deo, Dolan,
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Griffinger & Vecchione, P.C., Attention: Jeffrey A. Baumel, Esq. All notices
hereunder shall be effective upon receipt by the party to which it is addressed.
13. PARTIES. Hampshire represents that it is authorized to act as
Representative on behalf of the several Underwriters named in Schedule I hereto,
and the Company and the Selling Stockholder shall be entitled to act and rely on
any request, notice, consent, waiver, or agreement purportedly given on behalf
of the Underwriters when the same shall have been given by Hampshire on such
behalf. The Selling Stockholder represent that each of the attorneys-in-fact
named in the power of attorney referred to in Section 2(b)(1) hereof is
authorized to act on his behalf, and the Underwriters and the Company shall be
entitled to act and rely upon any request, notice, consent, waiver, or agreement
purportedly given on behalf of the Selling Stockholder when the same shall have
been given by either of such attorneys-in-fact. This Agreement shall inure
solely to the benefit of, and shall be binding upon, the several Underwriters,
the Company, and the Selling Stockholder and the persons and entities referred
to in Section 8 who are entitled to indemnification or contribution, and their
respective successors, legal representatives, and assigns (which shall not
include any buyer, as such, of the Firm Stock or the Additional Stock), and no
other person shall have, or be construed to have, any legal or equitable right,
remedy, or claim under, in respect of, or by virtue of this Agreement or any
provision herein contained. Notwithstanding anything contained in this
Agreement to the contrary, all of the obligations of the Underwriters hereunder
are several and not joint.
14. CONSTRUCTION. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
conflict of laws. TIME IS OF THE ESSENCE IN THIS AGREEMENT.
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15. CONSENT TO JURISDICTION. The Company irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out
of, or relating to, this Agreement, any document or instrument delivered
pursuant to, in connection with, or simultaneously with this Agreement, or a
breach of this Agreement or any such document or instrument. In any such action
or proceeding, the Company waives personal service of any summons, complaint, or
other process and agrees that service thereof may be made in accordance with
Section 12. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint, or
other process. Should the Company fail to appear or answer within such 30-day
period or such extended period, as the case may be, the Company shall be deemed
in default and judgment may be entered against the Company for the amount as
demanded in any summons, complaint, or other process so served.
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If the foregoing correctly sets forth the understandings among the
Representative, the Company, and the Selling Stockholder, please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement between us.
Very truly yours,
AMBASSADOR EYEWEAR GROUP, INC.
BY:
-----------------------------------
NAME:
TITLE:
--------------------------------------
____________, AS ATTORNEY-IN-
FACT FOR THE SELLING STOCKHOLDER
ACCEPTED AS OF THE DATE FIRST ABOVE
WRITTEN IN NEW YORK, NEW YORK
HAMPSHIRE SECURITIES CORPORATION*
BY:
-----------------------------------------
RICHARD K. ABBE, MANAGING DIRECTOR
*ON BEHALF OF ITSELF AND THE OTHER SEVERAL
UNDERWRITERS NAMED IN SCHEDULE I HERETO.
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SCHEDULE I
Total
Number
of Shares
to be
Underwriter Purchased
Hampshire Securities Corporation...............................................
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Total.............................................................2,000,000
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EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DIPLOMAT AMBASSADOR INC.
The undersigned, Barry Budilov, hereby certifies that:
1. He is the President of Diplomat Ambassador Inc. (the "Corporation")
referred to herein.
2. Such Corporation is a corporation duly organized and validly existing
under the General Corporation Law of the State of Delaware, as amended (the
"GCL").
3. The name of such corporation is Diplomat Ambassador Inc.
4. The date on which the original Certificate of Incorporation of such
Corporation was filed with the Secretary of State of the State of Delaware is
May 3, 1995.
5. This Amended and Restated Certificate of Incorporation (i) amends the
certificate of such Corporation so as to change the authorized number of
directors of such Corporation, to authorize the issuance of preferred stock, to
increase and change the authorized capital stock and to effect a stock split,
(ii) amends the certificate of incorporation of such Corporation so as to change
the name of such Corporation to Ambassador Eyewear Group, Inc., and (iii)
integrates into one instrument all of the provisions of such Certificate of
Incorporation, as so amended, which are effective and operative.
6. This Amended and Restated Certificate was duly adopted effective June
18, 1997, in accordance with Sections 241, 245 and 228 of the GCL and the
applicable provisions of such Certificate of Incorporation by the unanimous
written consent of the members of the Board of Directors of the Corporation in
accordance with Section 141(f) of the GCL and by Stockholders
<PAGE>
owning a majority of the outstanding shares of Common Stock of the Corporation
in accordance with Section 228.
The provisions of such Certificate of Incorporation, as so amended
and restated, are as follows:
FIRST: NAME
The name of this corporation is Ambassador Eyewear Group,
Inc. (the "Corporation").
SECOND: ADDRESS
The address, including the street number, street, city and
county, of the registered office of the Corporation in the State of Delaware is
1013 Centre Road, City of Wilmington, County of New Castle. The
name of the registered agent of the Corporation is Corporation Service
Company.
THIRD: PURPOSE
The purpose of the Corporation is to engage in any lawful act
or activity for which Corporations may be organized under the General
Corporation of Law of the State of Delaware, as amended.
FOURTH: CAPITAL STOCK
The aggregate number of shares of all classes of capital stock
which the Corporation shall have the authority to issue is Eleven million
(11,000,000), of which Ten million (10,000,000) shall be common stock, par value
$.01 per share (the " Common Stock"), and One million (1,000,000) shall be
preferred stock, par value $.01 per share (the "Preferred Stock").
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Except as provided in the next sentence, each share of Common
Stock, par value $.01 per share, of the Corporation outstanding immediately
prior to the time of filing of this Amended and Restated Certificate of
Incorporation (this "Certificate of Incorporation) with the Secretary of State
of the State of Delaware (the "Effective Time") shall, without any action by the
holder thereof, at the Effective Time, be changed into 1166 2/3 shares of Common
Stock. Except as otherwise required pursuant to any agreement to which the
Corporation is a party at the Effective Time the number of shares of Common
Stock to which each stockholder is entitled as a result of such change shall be
adjusted so that no fractional shares of Common Stock are issued in connection
with such change.
Shares of Preferred Stock may be issued in one or more series.
The number of shares included in any series of Preferred Stock and the full or
limited voting rights, if any, the cumulative or non-cumulative dividend rights,
if any, the conversion, redemption or sinking funds rights, if any and the
priorities, preferences and relative, participating, optional and other special
rights, if any, in respect of the Preferred Stock, any series of Preferred
Stock, or any rights pertaining thereto, and the qualification, limitations or
restrictions on the Preferred Stock, any series of Preferred Stock or any rights
pertaining thereto, shall be those set forth in the resolution or resolutions
providing for the issuance of the Preferred Stock or such series of Preferred
Stock adopted at anytime and from time to time by the affirmative vote of a
majority of the total number of directors which the Corporation would have if
there were no vacancies on the Board of Directors of the Corporation (the
"Board") at the time of the vote (the "Whole Board") on such resolution or
resolutions and filed with the Secretary of State of the State of Delaware.
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The Board is hereby expressly vested with authority, to the full extent now or
hereafter provided by the Law, to adopt any such resolution or resolutions.
FIFTH: INCORPORATOR
The name and address of the sole incorporator is Ralph D.
Mosely, Jr., 405 Lexington Avenue, New York, New York 10174.
SIXTH: VOTING
Unless required by law or determined by the chairman of the
meeting to be advisable, the vote by stockholders on any matter, including the
election of directors, need not be by written ballot.
SEVENTH: AMENDMENTS
The Corporation reserves the right to increase or decrease its
authorized capital stock, or any class or series thereof, and to reclassify the
same, and to amend, alter, change or repeal any provision contained in the
Certificate of Incorporation under which the Corporation is organized or in any
amendment thereto, in the manner now or hereafter prescribed by law, and all
rights conferred upon stockholders in said Certificate of Incorporation or any
amendment thereto are granted subject to the aforementioned reservation.
EIGHTH: DIRECTORS
The Board of Directors shall have the power at any time, and
from time to time, to adopt, amend and repeal any and all By-Laws of the
Corporation.
NINTH: INDEMNIFICATION
All persons who the Corporation is empowered to indemnify
pursuant to the provisions of Section 145 of the General Corporation Law of the
State of Delaware (or any
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similar provision or provisions of applicable law at the time in effect), shall
be indemnified by the Corporation to the full extent permitted thereby. The
foregoing right of indemnification shall not be deemed to be exclusive of any
other rights to which those seeking indemnification may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors, or
otherwise. No repeal or amendment of this Article NINTH shall adversely affect
any rights of any person pursuant to this Article NINTH which existed at the
time of such repeal or amendment with respect to acts or omissions occurring
prior to such repeal or amendment.
TENTH: EXCULPATION
No director of the Corporation shall be personally liable to
the Corporation or its stockholders for any monetary damages for breaches of
fiduciary duty as a director, provided that this provision shall not eliminate
or limit the liability of a director (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) under Section 174 of the General Corporation Law of the State of
Delaware; or (iv) for any transaction from which the director derived an
improper personal benefit. No repeal or amendment of this Article TENTH shall
adversely affect any rights of any person pursuant to this Article TENTH which
respect to acts or omissions occurring prior to such repeal or amendment.
IN WITNESS WHEREOF, the undersigned has signed this Amended and Restated
Certificate of Incorporation on this 30th day of June, 1997.
Barry Budilov
President and Chief Executive Officer
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<PAGE>
EXHIBIT 3.2
DIPLOMAT AMBASSADOR INC.
BY-LAWS
ARTICLE I
OFFICES
1. The location of the registered office of the Corporation in the State
of Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover, County
of Kent, and the name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.
2. The Corporation shall in addition to its registered office in the State
of Delaware establish and maintain an office or office's at such place or places
as the Board of Directors may from time to time find necessary or desirable.
ARTICLE II
CORPORATE SEAL
The corporate seal of the Corporation shall have inscribed thereon the
name of the Corporation and may be in such form as the Board of Directors may
determine. Such seal may be used by causing it or a facsimile thereof to be
impressed, affixed or otherwise reproduced.
ARTICLE III
MEETINGS OF STOCKHOLDERS
1. All meetings of the stockholders shall be held at the registered office
of the Corporation in the State of Delaware or at such other place as shall be
determined from time to time by the Board of Directors.
<PAGE>
2. The annual meeting of stockholders shall be held on such day and at
such time as may be determined from time to time by resolution of the Board of
Directors, when they shall elect by plurality vote, a Board of Directors to hold
office until the annual meeting of stockholders held next after their election
and their successors are respectively elected and qualified or until their
earlier resignation or removal. Any other proper business may be transacted at
the annual meeting.
3. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business, except as otherwise expressly provided by statute, by the Certificate
of Incorporation or by these By-laws. If, however, such majority shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting (except as otherwise provided by statute). At such adjourned meeting
at which the requisite amount of voting stock shall be represented any business
may be transacted which might have been transacted at the meeting as originally
notified.
4. At all meetings of the stockholders each stockholder having the right
to vote shall be entitled to vote in person, or by proxy appointed by an
instrument in writing subscribed by such stockholder and bearing a date not more
than three years prior to said meeting, unless such instrument provides for a
longer period.
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<PAGE>
5. At each meeting of the stockholders each stockholder shall have one
vote for each share of capital stock having voting power, registered in his name
on the books of the Corporation at the record date fixed in accordance with
these By-law, or otherwise determined, with respect to such meeting. Except as
otherwise expressly provided by statute, by the Certificate of Incorporation or
by these By-laws, all matters coming before any meeting of the stockholders
shall be decided by the vote of a majority of the number of shares of stock
present in person or represented by proxy at such meeting and entitled to vote
thereat, a quorum being present.
6. Notice of each meeting of the stockholders shall be mailed to each
stockholder entitled to vote thereat not less than 10 nor more than 60 days
before the date of the meeting. Such notice shall state the place, date and hour
of the meeting and, in the case of a special meeting, the purposes for which the
meeting is called.
7. Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the President or by the
Board of Directors, and shall be called by the Secretary at the request in
writing of stockholders owning a majority of the amount of the entire capital
stock of the Corporation issued and outstanding and entitled to vote. Such
request by stockholders shall state the purpose or purposes of the proposed
meeting.
8. Business transacted at each special meeting shall be confined to the
purpose or purposes stated in the notice of such
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<PAGE>
meeting.
9. The order of business at each meeting of stockholders shall be
determined by the presiding officer.
ARTICLE IV
DIRECTORS
1. The business and affairs of the Corporation shall be managed under the
direction of a Board of Directors, which may exercise all such powers and
authority for and on behalf of the Corporation as shall be permitted by law, the
Certificate of Incorporation or these By-laws. Each of the directors shall hold
office until the next annual meeting of stockholders and until his successor has
been elected and qualified or until his earlier a resignation or removal.
2. The Board of Directors may hold their meetings within or outside of the
State of Delaware, at such place or places as it may from time to time
determine.
3. The number of directors comprising the Board of Directors shall be such
number as may be from time to time fixed by resolution of the Board of
Directors. In case of any increase, the Board shall have power to elect each
additional director to hold office until the next annual meeting of stockholders
and until his successor is elected and qualified or his earlier resignation or
removal. Any decrease in the number of directors shall take effect at the time
of such action by the Board only to the extent that vacancies then exist; to the
extent that such decrease exceeds the number of such vacancies, the decrease
shall not become effective, except as further vacancies may thereafter occur,
until the time of
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<PAGE>
and in connection with the election of directors at the next succeeding annual
meeting of the stockholders.
4. If the office of any director becomes vacant, by reason of death,
resignation, disqualification or otherwise, a majority of the directors then in
office, although less than a quorum, may fill the vacancy by electing a
successor who shall hold office until the next annual meeting of stockholders
and until his successor is elected and qualified or his earlier resignation or
removal.
5. Any director may resign at any time by giving written notice of his
resignation to the Board of Directors. Any such resignation shall take effect
upon receipt thereof by the Board, or at such later date as may be specified
therein. Any such notice to the Board shall be addressed to it in care of the
Secretary.
ARTICLE V
COMMITTEES OF DIRECTORS
1. By resolutions adopted by a majority of the whole Board of Directors,
the Board may designate an Executive Committee and one or more other committees,
each such committee to consist of one or more directors of the Corporation. The
Executive Committee shall have and may exercise all the powers and authority of
the Board in the management of the business and affairs of the Corporation
(except as otherwise expressly limited by statute), including the power and
authority to declare dividends and to authorize the issuance of stock, and may
authorize the seal of the corporation to be affixed to all papers which may
require it. Each
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<PAGE>
such committee shall have such of the powers and authority of the Board as may
be provided from time to time in resolutions adopted by a majority of the whole
Board.
2. The requirements with respect to the manner in which the Executive
Committee and each such other committee shall hold meetings and take actions
shall be set forth in the resolutions of the Board of Directors designating the
Executive Committee or such other committee.
ARTICLE VI
COMPENSATION OF DIRECTORS
The directors shall receive such compensation for their services as may be
authorized by resolution of the Board of Directors, which compensation may
include an annual fee and a fixed sum for expense of attendance at regular or
special meetings of the Board or any committee thereof. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
ARTICLE VII
MEETINGS OF DIRECTORS; ACTION WITHOUT A MEETING
1. Regular meetings of the Board of Directors may be held without notice
at such time and place, either within or without the State of Delaware, as may
be determined from time to time by resolution of the Board.
2. Special meetings of the Board of Directors shall be held whenever
called by the President of the Corporation or the Board of Directors on at least
24 hours' notice to each director. Except as may be otherwise specifically
provided by statute, by the
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<PAGE>
Certificate of Incorporation or by these By-laws, the purpose or purposes of any
such special meeting need not be stated in such notice, although the time and
place of the meeting shall be stated.
3. At all meetings of the Board of Directors, the presence in person of a
majority of the members of the Board of Directors shall be necessary and
sufficient to constitute a quorum for the transaction of business, and, except
as otherwise provided by statute, by the Certificate of Incorporation or by
these By-laws, if a quorum shall be present the act of a majority of the
directors present shall be the act of the Board.
4. Any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting if
all the members of the Board or such committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the Board of committee. Any director may participate in a meeting
of the Board, or any committee designated by the Board, by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this sentence shall constitute presence in person at such meeting.
ARTICLE VIII
OFFICERS
1. The officers of the Corporation shall be chosen by the Board of
Directors and shall be a President, one or more Vice Presidents, a Secretary and
a Treasurer. The Board may also choose one or more Assistant Secretaries and
Assistant Treasurers, and
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<PAGE>
such other officers as it shall deem necessary. Any number of offices may be
held by the same person.
2. The salaries of all officers of the Corporation shall be fixed by the
Board of Directors, or in such manner as the Board may prescribe.
3. The officers of the Corporation shall hold office until their
successors are elected and qualified, or until their earlier resignation or
removal. Any officer may be at any time removed from office by the Board of
Directors, with or without cause. If the office of any officer becomes vacant
for any reason, the vacancy may be filled by the Board of Directors.
4. Any officer may resign at any time by giving written notice of his
resignation to the Board of Directors. Any such resignation shall take effect
upon receipt thereof by the Board or at such later date as may be specified
therein. Any such notice to the Board shall be addressed to it in care of the
Secretary.
ARTICLE IX
PRESIDENT
The President shall be the chief executive officer of the Corporation.
Subject to the supervision and direction of the Board of Directors, he shall be
responsible for managing the affairs of the Corporation. He shall have
supervision and direction of all of the other officers of the Corporation and
shall have the powers and duties usually and customarily associated with the
office of the President. He shall preside at meetings of the stockholders and of
the Board of Directors.
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<PAGE>
ARTICLE X
VICE PRESIDENTS
The Vice Presidents shall have such powers and duties as may be delegated
to them by the President.
ARTICLE XI
SECRETARY AND ASSISTANT SECRETARY
1. The Secretary shall attend all meetings of the Board of Directors and
of the stockholders, and shall record the minutes of all proceedings in a book
to be kept for that purpose. He shall perform like duties for the committees of
the Board when required.
2. The Secretary shall give, or cause to be given, notice of meetings of
the stockholders, of the Board of Directors and of the committees of the Board.
He shall keep in safe custody the seal of the Corporation, and when authorized
by the President, an Executive Vice President or a Vice President, shall affix
the same to any instrument requiring it, and when so affixed it shall be
attested by his signature or by the signature of an Assistant Secretary. He
shall have such other powers and duties as may be delegated to him by the
President.
3. The Assistant Secretary shall, in case of the absence of the Secretary,
perform the duties and exercise the powers of the Secretary, and shall have such
other powers and duties as may be delegated to them by the President.
ARTICLE XII
TREASURER AND ASSISTANT TREASURER
1. The Treasurer shall have the custody of the corporate funds and
securities, and shall deposit or cause to be
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<PAGE>
deposited under his direction all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors or pursuant to authority granted by it. He shall
render to the President and the Board whenever they may require it an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. He shall have such other powers and duties as may be delegated to
him by the President.
2. The Assistant Treasurer shall, in case of the absence of the Treasurer,
perform the duties and exercise the powers of the Treasurer, and shall have such
other powers and duties as may be delegated to them by the President.
ARTICLE XIII
CERTIFICATES OF STOCK
The certificates of stock of the Corporation shall be numbered and shall
be entered in the books of the Corporation as they are issued. They shall
exhibit the holder's name and number of shares and shall be signed by the
President or an Executive Vice President or Vice President, and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary.
ARTICLE XIV
CHECKS
All checks, drafts and other orders for the payment of money and all
promissory notes and other evidences of indebtedness of the Corporation shall be
signed by such officer or officers or such other person as may be designated by
the Board of Directors or pursuant to authority granted by it.
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<PAGE>
ARTICLE XV
FISCAL YEAR
The fiscal year of the Corporation shall be as determined from time to
time by resolution duly adopted by the Board of Directors.
ARTICLE XVI
NOTICES AND WAIVERS
1. Whenever by statute, by the Certificate of Incorporation or by these
By-laws it is provided that notice shall be given to any director or
stockholder, such provision shall not be construed to require personal notice,
but such notice may be given in writing, by mail, by depositing the same in the
United States mail, postage prepaid, directed to such stockholder or director at
his address as it appears on the records of the Corporation, and such notice
shall be deemed to be given at the time when the same shall be thus deposited.
Notice of regular or special meetings of the Board of Directors may also be
given to any director by telephone or by telex, telegraph or cable, and in the
latter event the notice shall be deemed to be given at the time such notice,
addressed to such director at the address hereinabove provided, is transmitted
by telex (with confirmed answerback), or delivered to and accepted by an
authorized telegraph or cable office.
2. Whenever by statute, by the Certificate of Incorporation or by these
By-laws a notice is required to be given, a written waiver thereof, signed by
the person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of any stockholder or director
at
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<PAGE>
any meeting thereof shall constitute a waiver of notice of such meeting by such
stockholder or director, as the case may be, except as otherwise provided by
statute.
ARTICLE XVII
INDEMNIFICATION
All persons who the Corporation is empowered to indemnify pursuant to the
provisions of Section 145 of the General Corporation Law of the State of
Delaware (or any similar provision or provisions of applicable law at the time
in effect) shall be indemnified by the Corporation to the full extent permitted
thereby. The foregoing right of indemnification shall not be deemed to be
exclusive of any other such rights to which those seeking indemnification from
the Corporation may be entitled, including, but not limited to, any rights of
indemnification to which they may be entitled pursuant to any agreement,
insurance policy, other by-law or charter provision, vote of stockholders or
directors, or otherwise. No repeal or amendment of this Article XVIII shall
adversely affect any rights of any person pursuant to this Article XVIII which
existed at the time of such repeal or amendment with respect to acts or
omissions occurring prior to such repeal or amendment.
ARTICLE XVIII
ALTERATION OF BY-LAWS
The By-laws of the Corporation may be altered, amended or repealed, and
new By-laws may be adopted, by the stockholders or by the Board of Directors.
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<PAGE>
EXHIBIT 10.1
ASSET SALE AGREEMENT
AGREEMENT made this 26th day of June, 1996, by and among DIPLOMAT
AMBASSADOR, INC., a Delaware corporation with offices at 1010 Arch Street, 3rd
Floor, Philadelphia, Pennsylvania 19107-3015 ("Purchaser"), WINDSOR OPTICAL,
INC., a Delaware corporation with offices at 625 Hollywood Avenue, Cherry Hill,
New Jersey 08002 ("Seller"), and JAY KITNICK and KENNETH KITNICK, individuals
with offices at 625 Hollywood Avenue, Cherry Hill, New Jersey 08002
(collectively, the "Principals").
W I T N E S S E T H:
WHEREAS, Seller is engaged in the optical business, including but not
limited to the design, manufacture, importing, and sale of eyewear (the
"Business"); and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, certain of Seller's assets, as hereinafter set forth; and
WHEREAS, Purchaser is willing to assume certain liabilities of Seller as
specifically set forth herein;
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements hereinafter set forth, the parties hereby agree as follows:
1. Sale of Assets. Seller hereby agrees to sell to Purchaser, and
Purchaser hereby agrees to purchase from Seller, all of the assets and
properties of Seller, of every kind and description, wherever located, as the
same shall exist on the date of the closing of the transactions contemplated by
this Agreement (the "Closing"), including without limitation all furniture,
fixtures, equipment, copying machines, telephones, facsimile machines,
typewriters, accounts receivable, inventory, investments, creative materials,
artwork, photography, brochures, rights in, to and under contracts, commitments,
and orders for the sale of goods, patents, trademarks, trade names, copyrights,
records, files, customer lists, telephone numbers, and good will. When used
herein, the term "Assets" shall mean the assets and properties of Seller to be
sold, conveyed, transferred, and delivered by Seller pursuant to this Agreement.
The Assets do not include real property owned by Seller, computer leases, or the
personal property of the Principals listed on Schedule 1 annexed hereto.
2. Purchase Price. The purchase price for the Assets shall be $550,000.00,
payable as follows:
(a) The sum of $100,000.00 shall be paid to Seller at the Closing, in one
of the following manners as directed by Seller:
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certified, cashier's or attorney trust account check, or wire transfer of
immediately available funds.
(b) The sum of $150,000.00 shall be paid, together with interest at the
rate of seven percent (7%) per annum, in thirty-six (36) equal monthly
installments of $5,654.23 each, commencing January 10, 1997. The obligation to
make such payments shall be evidenced by the promissory note of Purchaser
substantially in the form of Exhibit A annexed hereto.
(c) The sum of $300,000.00 shall be paid, together with interest at the
rate of seven percent (7%) per annum, in eighty-four (84) equal monthly
installments of $4,527.80 each, commencing July 20, 1996. The obligation to make
such payments shall be evidenced by the promissory note of Purchaser
substantially in the form of Exhibit B annexed hereto.
3. Seller Liabilities.
(a) Purchaser hereby agrees to assume at the time of the Closing Seller's
obligation to pay, perform, and discharge the following liabilities and
obligations of Seller, which are the sole and exclusive liabilities and
obligations of Seller being assumed by Purchaser:
(i) Subject to the conditions precedent set forth in Section 9(c), a
loan (the "UJB Loan") from United Jersey Bank ("UJB") to Seller, which had an
outstanding balance of principal and accrued interest (including outstanding
letters of credit) of $922,908.83 as of June 24, 1996; as is set forth in
Section 10(d), the payment in full of the UJB Loan by Purchaser is a condition
precedent to the obligation of Seller and the Principals to consummate the
transactions contemplated by this Agreement;
(ii) The accounts payable of Seller listed or referred to on
Schedule 4(r) hereto and additional accounts payable incurred by Seller after
May 31, 1996 in the ordinary course of business; provided, that Purchaser is
only assuming accounts payable incurred after such date, including accounts
payable incurred after the date of such Schedule, to the extent that such
accounts are fully offset by Assets (or a right to receive Assets) corresponding
to such accounts payable; and
(iii) The contracts and obligations of Seller listed on Schedule
3(a)(iii) hereto. Purchaser shall be required to pay over to Seller the benefit
received by Purchaser from any contract or obligation of Seller that is not
assumed Purchaser hereunder unless Purchaser performs Seller's obligation
thereunder.
(b) Except as set forth in Section 3(a), but subject to the
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other provisions of this Section 3, Purchaser shall not be obligated to pay any
debts or perform any obligations of Seller as they exist on the date of the
Closing. Seller shall convey the Assets to Purchaser free and clear of any and
all claims, liens, or encumbrances, other than liens securing the UJB Loan.
(c) Seller hereby agrees to indemnify Purchaser and hold it harmless from
and against any and all loss, cost, liability, or expense, including reasonable
attorneys' fees, incurred by Purchaser arising out of any claim made against
Purchaser that Seller failed to timely pay its debts or perform its obligations
as they exist on the date of the Closing.
(d) Purchaser hereby agrees to indemnify Seller and the Principals and
hold them harmless from and against any and all loss, cost, liability, or
expense, including reasonable attorneys' fees, incurred by Seller or the
Principals arising out of any claim made against them that Purchaser failed to
timely pay the debts and obligations specifically assumed by Purchaser under
this Agreement.
(e) In the event that any claim is made against Purchaser that Seller
failed to timely pay its debts or perform its obligations as they exist on the
date of the Closing, other than the debts and obligations specifically assumed
by Purchaser under Section 3(a), and Seller fails to satisfy such claim within
thirty (30) days after receipt of written notice thereof from Purchaser,
Purchaser shall have the option to deduct and withhold from the amounts next
payable under the promissory notes delivered at the Closing, or, if the unpaid
balance of such promissory notes is insufficient, from consulting fees next
payable under the consulting agreement described in Section 6(a), an amount
equal to the amount of such claim. The amount so withheld shall be paid to the
appropriate party within seven (7) business days after the creditor who made the
claim agrees that Purchaser shall have no liability with respect thereto.
Notwithstanding the foregoing, Purchaser shall not set off or claim damages for
any undisclosed liabilities of Seller until first (i) discussing with Kenneth
Kitnick whether Purchaser received a corresponding benefit related to such
undisclosed liability, and (ii) advising Kenneth Kitnick in writing of its
determination to claim a set off or damages, which claim may be made by
Purchaser even if Kenneth Kitnick disagrees with Purchaser's right to same.
4. Representations and Warranties of Seller and the Principals.
Seller and each of the Principals hereby jointly and severally represent
and warrant to Purchaser as follows:
(a) Organization, Power and Standing. Seller is a
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corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware, is duly qualified and in good standing in the
State of New Jersey and in each jurisdiction where such qualification is
necessary, and has the corporate power and authority to carry on its business as
it is now being conducted, to own, lease, and operate its properties and to
carry out the transactions contemplated by this Agreement.
(b) Capitalization. All issued and outstanding shares of the capital stock
of Seller are owned by the parties set forth in Schedule 4(b) hereto.
(c) Authorization. The execution, delivery, and performance of this
Agreement by Seller and the consummation of the transactions contemplated hereby
have been duly authorized by the Board of Directors and shareholders of Seller,
and no other corporate proceedings on the part of Seller are necessary to
authorize, approve and perform this Agreement or the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by the
Principals and on behalf of Seller, and constitutes a valid and binding
obligation of Seller and the Principals enforceable in accordance with its
terms, except to the extent that enforceability may be limited by general
principles of equity or laws relating to creditors' rights generally.
(d) Freedom to Contract. The execution and delivery of this Agreement, and
the consummation of the transactions contemplated hereby, do not and will not
violate or conflict with the provisions of the Certificate of Incorporation or
By-laws of Seller, or the provisions of any note, indenture, security agreement,
lease, guaranty, or other instrument to which Seller or either of the Principals
is a party or by which any of them is bound, except the UJB Loan, or result in a
breach or violation by Seller or either of the Principals of the provisions of
any order, injunction, judgment, or decree of any court, governmental authority,
or regulatory agency. Except as set forth on Schedule 4(d), the execution and
delivery of this Agreement, and the consummation of the transactions
contemplated hereby (including the assignment to Purchaser of licenses to use
trademarks and trade names), will not require the consent, approval, or
authorization of any person or entity or governmental authority, other than
Archie Comic Publications, Inc., whose consent Seller represents will be
obtained within fourteen (14) days after the date of the Closing, and UJB.
(e) Ownership of Assets. Except for liens securing the UJB Loan and except
as set forth on Schedule 4(e), Seller has good and valid title to all of the
Assets, free and clear of all liens, mortgages, security interests, pledges,
claims, restrictions, and other encumbrances of any nature whatsoever,
including, without limitation, chattel mortgages, conditional
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sales contracts, collateral security agreements, and other title or interest
retention agreements.
(f) Compliance with Laws, Permits, and Licenses. Seller has at all times
in the past, and at all times from the date hereof through the date of the
Closing shall, comply in all material respects with all state and local laws,
regulations, orders, judgments, and decrees applicable to its property, assets,
and operations, obtain all permits, licenses, orders, and approvals of federal,
state, local, or foreign governmental and regulatory bodies that are required in
order to permit it to carry on the Business as presently conducted, and neither
Seller nor either of the Principals has received any notice of any violation of
any applicable law, regulation, order, judgment, or decree. Except as set forth
on Schedule 4(f), no license, permit, or approval of any governmental or
regulatory body ("Permit") is material or necessary for the conduct of the
Business. All Permits of Seller are set forth on Schedule 4(f), and all of such
Permits are in full force and effect, no material violations thereof have been
recorded, and no proceeding to revoke, suspend, or otherwise limit any such
Permit is pending, or, to the best of Seller's and the Principals' knowledge,
threatened.
(g) Litigation. There is no suit, action, arbitration, or legal,
administrative, or other proceeding, or governmental investigation, or tax audit
pending, or, to the knowledge of Seller and each of the Principals threatened,
against Seller or any of its properties or businesses; there is no suit, action,
arbitration, or legal, administrative, or other proceeding, or governmental
investigation, or tax audit pending, or, to the knowledge of each of the
Principals threatened, against either of the Principals, or any of their
properties or businesses, which would be likely to materially and adversely
affect the Business or the transactions contemplated hereby; and neither Seller
nor either of the Principals has any knowledge of any basis for any such suit,
action, arbitration or proceeding. There is no judgment, order, injunction, or
decree of any court, governmental authority, or regulatory agency to which
Seller or either of the Principals, or any of their properties or businesses, is
subject which is likely to have a material and adverse effect on the
transactions contemplated by this Agreement. Neither Seller nor either of the
Principals is in default under any order, license, or demand of any federal,
state, or municipal or other governmental agency or with respect to any order,
writ, injunction, or decree of any court.
(h) Tax Matters. Each of Seller and each of the Principals has duly filed
all required federal, state, and local tax returns, including without limitation
income tax returns, federal, state, and local business privilege and license tax
returns, and sales, use, and transfer tax returns (all such returns being true
and complete when filed), and has paid all
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taxes shown to be due thereby or which have become due as a result of a
subsequent assessment. Seller's business has never had its federal income tax
returns audited by the Internal Revenue Service, nor has it had a New Jersey
Sales Tax audit during the three (3) year period ending on the date of this
Agreement. Seller's New Jersey Sales Tax I.D. Number is 221-928-078.
(i) Condition of Assets. The Assets are in good condition and repair
(ordinary wear and tear excepted) and suitable for the uses for which they are
intended. To Seller's and Principals' knowledge, all of the Assets comply in all
material respects with all federal, state, and local health and other applicable
laws, ordinances, regulations, orders, and other requirement relating thereto
currently in effect. There are no defects or deficiencies in the operating
condition or state of repair of, or any other condition or state of facts
affecting, any of the Assets which materially adversely affect or which may be
reasonably expected to materially affect adversely their use or detract from
their value.
(j) Books and Records. All accounts, books, check registers, bank
statements, accounting records, ledgers and official and other records of
Seller are complete and correct in all material respects, there are no material
inaccuracies or discrepancies of any kind contained or reflected therein, and
they fairly present the financial position of Seller and are accurately
reflected in the financial statements furnished by Seller to Purchaser and
described in Section 4 (n). Seller does not have any of its records, systems,
controls, data or information recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
that (including all means of access thereto and therefrom) are not under
Seller's exclusive ownership and direct (or, as to records held by Seller's
accountants and attorneys, indirect) control.
(k) Customers. Neither Seller nor either of the Principals has knowledge
of any termination, cancellation, or limitation of, or any material adverse
modification or change in the business relationship of Seller with, any customer
or group of customers. Schedule 4(k) sets forth a true and accurate list of all
customers of Seller who ordered goods from Seller during the twelve (12) month
period ended May 31, 1996.
(1) Suppliers. Neither Seller nor either of the Principals has any
knowledge of the interruption or threatened interruption of any major source of
supply necessary for the continuing conduct of the Business substantially in the
manner in which it has been conducted prior to the date hereof. Schedule 4(l)
set forth a true and complete list of all suppliers from which Seller
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purchased goods or services during the twelve (12) month period ended May 31,
1996.
(m) Union Activity; Labor Disputes. Seller is not a party to any labor or
collective bargaining agreement with any labor organization, group, or
association, nor is it a member of any organization, group, or association the
membership in which binds Seller with respect to its employee hiring or
termination policies. There is no union representing or purporting to represent
any of the employees of Seller. There are no labor strikes, disputes, slow
downs, work stoppages or other labor troubles or grievances pending or, to the
knowledge of Seller and the Principals, threatened against or involving Seller.
No unfair labor practice complaint before the National Labor Relations Board, no
discharge or grievance before the Equal Employment Opportunity Commission and no
complaint, charge or grievance of any nature before any similar or comparable
governmental authority, in any case relating to Seller or the conduct of its
business, is pending or, to the knowledge of Seller and the Principals,
threatened. Seller is not liable for any overdue wages.
(n) Financial Statements. Seller has delivered to Purchaser copies of its
unaudited financial statements for the fiscal year ended December 31, 1995, and
unaudited interim financial statements for the period ended April 30, 1996,
copies of which are annexed hereto as Schedule 4(n). To the best of Seller's and
the Principal's knowledge, all of such financial statements have been prepared
in accordance generally accepted accounting principles applied on a basis
consistent with that of preceding accounting periods, and present fairly and
accurately in all material respects the financial condition, results of
operations, and assets and liabilities of Seller as at and for the periods
indicated.
(o) Accounts Receivable. Schedule 4(o) sets forth a true and correct list
of the accounts receivable of Seller as of June 25, 1996, such list being aged
to show the amounts of receivables which, as of June 25, 1996, were,
respectively, more than thirty (30), sixty (60) and ninety (90) days old. Except
for receivables which may be due from affiliates of Seller, and except for
discounts for buying groups customarily granted in the ordinary course of
optical business which are listed on Schedule 4(o), all of the accounts
receivable of Seller are actual and bona fide receivables representing
obligations for the total dollar amount shown on Schedule 4(o), resulted from
transactions in the ordinary course of the Business, and reflect extensions of
credit consistent with the past practice of Seller. Except as expressly set
forth on Schedule 4(o), Seller has not granted any credit to any customer whose
unpaid account is assigned to Purchaser hereunder, no customer whose unpaid
account is assigned to Purchaser hereunder has made any claim against Seller
with
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respective to a defective delivery of goods, and Seller has the legal right to
collect all of the receivables listed on Schedule 4(o) in full in accordance
with their terms without being subject to any recoupments, set-offs or
counterclaims. No accounts receivable have been written off since December 31,
1995. Except as set forth on Schedule 4(o), the terms on which Seller generally
grants credit to any customer is "2/10 net 30", i.e., a 2% discount for payments
made within ten (10) days after invoicing, and all payments due within thirty
(30) days of invoicing. Notwithstanding the foregoing, however, Purchaser
acknowledges and agrees that, except to the extent of the foregoing
representations and warranties, (A) Seller is not in any manner representing the
collectability or guaranteeing the collection of any or all accounts receivable,
in whole or in part, and (B) such accounts receivable are being transferred to
Purchaser "as is". The Principals agree to cooperate with Purchaser to assist it
in collecting the accounts receivable being transferred to Purchaser under this
Agreement; provided, that nothing set forth in this Section shall be deemed to
require that the Principals or Seller institute litigation on Purchaser's
behalf.
(p) Inventory. Schedule 4(p) sets forth a true and correct list of
Seller's inventory of work in progress, finished products, spare parts, and
other items held for resale or incorporation into items sold in connection with
the Business, as of June 24, 1996. The inventory reflected on Schedule 4(p) or
acquired after the date thereof and prior to the date of the Closing consists
and will consist at the time of the Closing of items that are not broken or
damaged and are usable for the purposes for which they are intended without the
addition of any parts. Purchaser acknowledges that no representation is being
made with respect to the price at which any inventory may be sold.
(q) Bank Accounts and Investments. Schedule 4(q) sets forth a true and
complete list of each bank, broker, or other institution in which Seller has an
account, including without limitation account number, name and address of the
institution where such account is held, the assets in the account, and names of
the parties with power to withdraw funds from such accounts. Except for the UJB
Loan, and except for outstanding checks and other items set forth on Schedule
4(q), Seller has no unpaid actual or contingent liability to the depositary
where such accounts are held, including but not limited to unpaid margin or
other loans, lines of credit, or letters of credit; no such account is pledged
as security for any obligation; and no person or entity has power to withdraw or
cause the withdrawal of funds or other assets from such accounts, by
presentation of a sight draft or letter of credit or exercise of a right of
set-off or otherwise.
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(r) Accounts Payable. Schedule 4(r) sets forth a true and correct list of
Seller's accounts payable as of __________, including the name and address of
each party to whom such payable is owed, the goods or services with respect to
which such payable is owed, the amount owed, and the date payment is due. Except
as set forth on Schedule 4 (r), no such payable was due and owing before the
date of such Schedule. All of the accounts payable of Seller are the result of
bona fide transactions by Seller in the ordinary course of its business.
(s) Patents, Trademarks, Copyrights. Schedule 4(s) sets forth a correct
and complete list of all material patents, trademarks, trade names, copyrights,
and applications therefor owned by Seller or used in the conduct of Seller's
business. Except as disclosed in Schedule 4(s): (i) Seller owns or possesses
adequate licenses or other valid rights to use (without the making of any
separate license payment to others or the obligation to grant rights to others
in exchange) all patents, trademarks, trade names, copyrights, know-how, and
other proprietary information necessary to the conduct of its business as
presently being conducted; (ii) the validity of such items or the title thereto
of Seller has not been questioned in any litigation to which Seller is a party;
and (iii) to the best of Sellers', and the Principals' knowledge, the conduct of
the business of Seller as now operated does not conflict with valid patents,
trademarks, trade names, or copyrights of others. Seller has not granted a
license to, or otherwise authorized any other person or entity to use, any
trademark or trade name or any proprietary right owned or licensed by Seller. No
infringement of any proprietary right owned or licensed by Seller is known to
Seller or the Principals. Seller is not in default of its obligations to any
party that has granted to Seller a license or other rights to use a trademark or
trade name.
(t) No Changes. Since December 31, 1995, except as disclosed in this
Agreement, there has not been any material adverse change in the assets,
liabilities, business properties, operations, prospects or position, financial
or otherwise, of Seller or on Seller's ability to perform its obligations
hereunder. From April 30, 1996 to the date of the Closing, Seller has been and
will be engaged in business and make commitments and expenditures only in the
regular and ordinary course.
(u) Representations on Closing. The representations and warranties of
Seller and the Principals contained in this Agreement will be true and correct
on the date of the Closing as though made on and as of such date, except to the
extent that they were intended by their context to be accurate only as of the
date on which made.
(v) Full Disclosure. No representation or warranty by
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Seller or either of the Principals in this Agreement, or in any Exhibit of
Schedule hereto, or any certificate furnished or to be furnished hereunder,
contains any untrue statement of material fact or omits to state any material
fact necessary to make any statement herein or therein not misleading. There is
no fact which Seller or either of the Principals has not disclosed to Purchaser
which may have a material adverse effect on the Assets or the transactions
contemplated hereby, or on Seller's or the Principals' ability to perform their
obligations hereunder.
5. Representations of Purchaser. Purchaser hereby represents and warrants
to Seller as follows:
(a) Organization, Power and Standing. Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware, is duly qualified and in good standing in the State of Pennsylvania
and in each jurisdiction where such qualification is necessary, and has the
corporate power and authority to carry on its business as it is now being
conducted and to own, lease, and operate its properties and carry out the
transactions contemplated by this Agreement.
(b) Authorization. The execution, delivery, and performance of this
Agreement by Purchaser and the consummation of the transactions contemplated
hereby have been duly authorized by the Board of Directors of Purchaser, and no
other corporate proceedings on the part of Purchaser are necessary to authorize,
approve and perform this Agreement or the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by and on behalf of
Purchaser, and constitutes a valid and binding obligation of Purchaser
enforceable in accordance with its terms, except to the extent that
enforceability may be limited by general principles of equity or laws relating
to creditors' rights generally.
(c) Freedom to Contract. The execution and delivery of this Agreement, and
the consummation of the transactions contemplated hereby, do not and will not
violate or conflict with the provisions of the Certificate of Incorporation or
By-laws of Purchaser, or the provisions of any note, indenture, security
agreement, lease, guaranty, or other instrument to which Purchaser is a party or
by which it is bound, or result in a breach or violation by Purchaser of the
provisions of any order, injunction, judgment, or decree of any court,
governmental authority, or regulatory agency. The execution and delivery of this
Agreement by purchaser and the consummation of the transactions contemplated
hereby will not require the consent, approval, or authorization of any person or
entity or governmental authority.
(d) Litigation. There is no suit, action, arbitration, or
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legal, administrative, or other proceeding, or governmental investigation, or
tax audit pending, or, to the best knowledge of Purchaser, threatened against
Purchaser, or its properties or businesses. There is no judgment, order,
injunction, or decree of any court, governmental authority, or regulatory agency
to which Purchaser, or any of its properties or businesses is subject which is
likely to have a material and adverse effect on the transactions contemplated by
this Agreement. Purchaser is not in default under any order, license, or demand
of any federal, state, or municipal or other governmental agency or with respect
to any order, writ, injunction, or decree of any court.
(e) Financial Statements. Purchaser has delivered to Seller copies of its
financial statements for the fiscal year ended December 31, 1995, which were
certified by Larry J. Liebowitz, CPA, and its unaudited financial statements for
the four (4) month period ended April 30, 1996. To the best of Purchaser's
knowledge, all of such financial statements have been prepared in accordance
generally accepted accounting principles applied on a basis consistent with that
of preceding accounting periods, and present fairly and accurately in all
material respects the financial condition, results of operations, and assets and
liabilities of Purchaser as at and for the periods indicated.
(f) No Changes. Since December 31, 1995, there has not been any material
adverse change in the assets, liabilities, business properties, operations,
prospects or position, financial or otherwise, of Purchaser. From December 31,
1995 to the date of the Closing, Purchaser has been and will be engaged in
business and make commitments and expenditures only in the regular and ordinary
course.
(g) Compliance with Laws, Permits, and Licenses. Purchaser has at all
times in the past, and at all times from the date hereof through the date of the
Closing shall, comply in all material respects with all state and local laws,
regulations, orders, judgments, and decrees applicable to its property, assets,
and operations, obtain all permits, licenses, orders, and approvals of federal,
state, local, or foreign governmental and regulatory bodies that are required in
order to permit it to carry on its business as presently conducted. Purchaser
has not received any notice of any violation of any applicable law, regulation,
order, judgment, or decree. All licenses, permits, or approvals of any
governmental or regulatory body ("Permits") that are material or necessary for
the conduct of Purchaser's business are in full force and effect, no material
violations thereof have been recorded, and no proceeding to revoke, suspend, or
otherwise limit any such Permit is pending, or, to the best of Purchaser's
knowledge, threatened.
(h) Full Disclosure. No representation or warranty by Purchaser in this
Agreement, or in any Exhibit or Schedule
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hereto, or any certificate furnished or to be furnished hereunder, contains any
untrue statement of material fact or omits to state any material fact necessary
to make any statement herein or thereunder not misleading. There is no fact
which Purchaser has not disclosed to Seller which may have a material adverse
effect on the transactions contemplated hereby or on Purchaser's ability to
perform its obligations hereunder.
6. Consulting and Employment Agreements; Covenant Against Competition.
(a) At the Closing, Purchaser and Jay Kitnick shall execute and deliver a
consulting agreement substantially in the form annexed hereto, which consulting
agreement shall provide for the payment to Jay Kitnick of a consulting fee in
the total amount of $250,000.00 over a three (3) year period beginning eight (8)
years after the date of the Closing.
(b) At the Closing. Purchaser and Kenneth Kitnick shall execute and
deliver a consulting agreement substantially in the form annexed hereto, which
employment agreement shall provide for Kenneth Kitnick to be employed by
Purchaser for an initial term of three (3) years.
(c) Each of Seller and Jay Kitnick hereby agrees that he or it will not,
for a period of three (3) years after the date of the Closing, engage or
participate in any manner whatsoever, either as an employee, employer,
consultant, agent, principal, partner, stockholder, corporate officer, or in any
other individual or representative capacity, in the Business in the United
States or Canada.
7. Sales Tax and Escrow. Purchaser, at its option, may file a notice with
respect to the transactions contemplated by this Agreement with the New Jersey
Division of Taxation. In the event that Purchaser elects to file such a notice,
Seller shall provide Purchaser with such information as may be necessary to
complete the forms requested by the Division of Taxation, including Form C-9600.
Seller and Purchaser hereby agree that, in the event that the Division of
Taxation notifies Purchaser that a portion of the purchase price must be held in
escrow to secure the payment of taxes in order to protect Purchaser from
liability to pay such taxes, the sum set forth in such notice shall be withheld
from the portion of the purchase price payable to Seller at the Closing (or, if
such notice is received by Purchaser after the Closing, from the first payments
due and payable under the promissory notes delivered at the Closing) and held in
escrow by Nagel Rice & Dreifuss, Esqs., attorneys for Purchaser ("NRD"). If the
Division of Taxation issues a demand letter to Purchaser with respect to taxes
payable by Seller, NRD shall give written notice thereof to Seller and its
counsel. If NRD fails to receive from the Division of Taxation a written
withdrawal or
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suspension of such demand letter within thirty (30) days after giving written
notice thereof to Seller or its counsel, NRD shall pay over the amount demanded
to the State of New Jersey from the escrowed funds, together with any interest
or penalties payable as a result of the thirty (30) days suspension of NRD's
right to pay same provided for in the preceding sentence, and the amount so paid
shall be credited against the purchase price. NRD shall pay over the escrowed
funds, or the remaining balance thereof, to Seller upon receipt of a clearance
letter from the Division of Taxation.
8. Access. Seller and the Principals shall afford to Purchaser and its
representatives free and full access, during normal business hours and upon
reasonable prior notice, to all of the books, records, contracts, commitments,
and other documents relating to Seller's business, properties, and assets, and
the right to consult with Seller's officers, employees, accountants, counsel,
and other representatives for the purpose of making such further investigations
of Seller's business as Purchaser shall desire to make. In connection with such
investigations, Seller and the Principals shall furnish to Purchaser copies of
all such documents, records, and information relating to Seller's properties,
assets, and business as Purchaser may from time to time reasonably request. In
the event that the transactions contemplated by this Agreement are not
consummated, Purchaser shall not solicit Purchaser's employees or sales
representatives to become employees, agents, contractors, or sales
representatives for Purchaser for a period of one (1) year after the termination
of this Agreement, or at any time use such information in a manner adverse to
Seller, and shall keep all of such information confidential.
9. Conditions Precedent to Obligations of Purchaser. The obligation of
Purchaser to consummate the purchase of the Assets and the other transactions
provided for herein is subject to the fulfillment on or prior to the date of the
Closing of the following conditions:
(a) The representations and warranties of Seller and the Principals
contained in this Agreement shall have been true at all times on and before the
date of the Closing, with the same effect as though continually made throughout
such period, except to the extent that any such representation or warranty was
intended by its context to be accurate only as of the date on which made; Seller
and the Principals shall have performed all obligations and complied with all
covenants and conditions required to be performed or complied with by them under
this Agreement; and Purchaser shall have received a certificate dated the date
of the Closing signed by the Principals individually and as officers of Seller
certifying to each of the foregoing effects.
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(b) Purchaser shall have been furnished with a certificate of good
standing of the Secretary of State of the State of Delaware, certifying that
Seller is a corporation validly existing and in good standing under the laws of
the State of Delaware.
(c) Purchaser shall have received written confirmation from UJB that the
unpaid balance of principal and interest due and payable on the UJB Loan as of
the date of the Closing is not more than $922,908.83.
(d) Purchaser shall have received a certificate of the secretary of Seller
certifying as to the identities and signatures of the executive officers of
Seller, the Certificate of Incorporation and Bylaws of Seller (true copies of
which shall be annexed to such certificate), and the approval and full force and
effect of the resolutions of the Board of Directors and shareholders of Seller
approving this Agreement and the transactions contemplated hereby (true copies
of which shall be annexed to such certificate).
10. Conditions Precedent to Obligations of Seller and the Principals. The
obligation of Seller and the Principals to consummate the sale of the Assets and
the other transactions provided for herein are subject to the fulfillment at or
prior to the date of the Closing of the following conditions:
(a) The representations and warranties of Purchaser contained in this
Agreement shall have been true at all times on or before the date of the Closing
with the same effect as if continually made throughout such period, except to
the extent that any such representation or warranty was intended by its context
to be accurate only as of the date on which made; Purchaser shall have performed
all obligations and complied with all covenants and conditions required to be
performed or complied with by it under this Agreement; and Seller shall have
received a certificate dated the date of the Closing signed on behalf of
Purchaser, by its President, certifying to each of the foregoing effects.
(b) Seller shall have been furnished with a certificate of good standing
of the Secretary of the State of Delaware, certifying that Purchaser is a
corporation validly existing and in good standing under the laws of the State of
Delaware.
(c) Seller shall have received a certificate of the secretary of Purchaser
certifying as to the identities and signatures of the executive officers of
Purchaser, the Certificate of Incorporation and Bylaws of Purchaser (true copies
of which shall be annexed to such certificate), and the approval and full force
and effect of the resolutions of the Board of Directors of Purchaser approving
this Agreement and the
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transactions contemplated hereby (true copies of which shall be annexed to such
certificate).
(d) Seller shall have received evidence, reasonably satisfactory to Seller
and its counsel, that the UJB Loan has been paid in full and that UJB has
released all liens securing the UJB Loan.
(e) Purchaser shall have executed and delivered the employment and
consulting agreements described in Section 6 and a written assumption of the
contracts and obligations of Seller assumed by Purchaser under this Agreement.
11. Pre-closing Inspection. Seller hereby agrees to permit Purchaser to
inspect the Assets at any reasonable time before the Closing.
12. Covenants. Each of the parties hereto hereby agrees to use his or its
best efforts to (a) cause all of the obligations imposed on him or it in this
Agreement to be duly complied with, and (b) obtain any and all consents,
waivers, amendments, modifications, approvals, and authorizations necessary for
the consummation of the transactions contemplated by this Agreement.
13. Closing.
(a) The Closing shall be held at the offices of Nagel Rice & Dreifuss,
Esqs., 301 S. Livingston Avenue, Livingston, New Jersey 07039, on June 27, 1996
at 2:00 p.m., or at such other place or time or on such other date as may be
mutually agreed by the parties.
(b) At the Closing, Seller and the Principals shall deliver to Purchaser:
(i) A bill of sale, in the form annexed hereto as Exhibit C, and
such other instruments of sale, conveyance, transfer, and assignment,
satisfactory in form and substance to Purchaser and its counsel, as Purchaser
may reasonably require in order to convey to Purchaser all of Seller's right,
title, and interest in and to the Assets;
(ii) The certificate required by Section 9(a);
(iii) The Certificate of Good Standing required by Section 9(b);
(iv) Written assignments of all trademarks, copyrights, patents, and
applications and licenses therefor being conveyed by Seller to Purchaser
hereunder, satisfactory in form and content to Purchaser and its counsel; and
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(v) The secretary's certificate required by Section 9(e).
(c) At the Closing, Purchaser shall deliver to Seller and the Principals:
(i) The Certificate required by Section 10(a);
(ii) The Certificate of Good Standing required by Section 10(b);
(iii) The promissory notes required by Sections 2(b) and 2(c);
(iv) A separate document confirming the assumption by Purchaser of
the obligations of Seller required to be assumed by Purchaser hereunder,
reasonably acceptable in form and content to Seller and its counsel;
(v) The evidence of the repayment of the UJB Loan and release of the
liens securing same required by Section 10(d); and
(v) The secretary's certificate required by Section 10(e).
(d) At the Closing, Purchaser and the Principals shall execute and deliver
the employment and consulting agreements referred to in Section 6.
(e) Purchaser shall have a period of thirty (30) days after the date of
the Closing to take physical possession of the Assets. Seller agrees to continue
in effect all insurance policies covering the Assets on the date of this
Agreement for the benefit of Purchaser during such thirty (30) day period in a
form previously reviewed and accepted by Purchaser.
14. Further Assurances.
(a) At any time or from time to time after the Closing, provided Purchaser
is not in breach of this Agreement, Seller and each of the Principals shall
execute and deliver such assignments, consents, documents, and further
instruments or transfer and conveyance, and take or cause to be taken all such
other actions, as Purchaser may reasonably request in order to put Purchaser in
actual possession and operating control of the Assets, or to more fully and
effectively vest in Purchaser, or to confirm its title to and possession of, the
Assets.
(b) At any time or from time to time after the Closing, provided Seller is
not in breach of this Agreement, Purchaser shall execute and deliver such
assumptions, consents, documents, and further instruments, and take or cause to
be taken all such
16
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other actions, as Seller or the Principals may reasonably request in order to
confirm the assumption by Purchaser of the contracts and obligations of Seller
assumed by Purchaser hereunder.
15. Termination.
(a) This Agreement may be terminated at any time by the written agreement
of Seller and Purchaser.
(b) In the event of the termination of this Agreement in accordance with
the provisions of this Section 15, this Agreement shall forthwith become void
and be of no further effect, and there shall be no liability hereunder on the
part of any party hereto.
16. No Brokers. Each party hereto represents to the others that he or it
does not and will not have any liability for any broker's, finder's, or
originator's fee or similar charge in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby.
The party hereto through whom any such broker, finder, or originator asserts
any claim to a commission shall, in the event of a violation of this
representation, indemnify and hold harmless the other parties hereto from all
rights, claims and causes of action asserted by such broker, finder, or
originator, including reasonable attorneys' fees.
17. Notices. All notices which are required or which may be given pursuant
to the terms of this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or mailed by certified mail, return
receipt requested, or by an overnight courier which provides a receipt for
delivery, to each party at the address set forth below, or at such other address
as such party may specify in a written notice given in accordance with this
Section:
If to Seller, or either of the Principals, to:
625 Hollywood Avenue
Cherry Hill, New Jersey 08002
With a copy to:
Robert P. Krauss, Esq.
Mesirov Gelman Jaffe Cramer & Jamieson
1735 Market Street, 38th Floor
Philadelphia, Pennsylvania 19103
If to Purchaser:
Mr. Rudy Slucker
66 Duffield Drive
17
<PAGE>
South Orange, New Jersey 07079
and
Mr. Barry Budilov
Diplomat-Ambassador Eyewear Group
1010 Arch Street, 3rd Floor
Philadelphia, Pennsylvania 19107-3015
With a copy to:
Jay J. Rice, Esq.
Nagel Rice & Dreifuss, Esqs.
301 S. Livingston Avenue
Livingston, New Jersey 07039
18. Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective heirs, executors,
personal representatives, successors and assigns, and nothing in this Agreement,
express or implied, is intended to confer any rights on any other person.
19. Severability. The terms, conditions, covenants and provisions of this
Agreement shall be deemed to be severable. If any clause or provision herein
contained shall be adjudged to be invalid or unenforceable by a court of
competent jurisdiction or by operation of any applicable law, the same shall be
deemed to be severable and shall not affect the validity of any other clause or
provision herein, and all other clauses or provisions shall remain in full force
and effect. The parties agree that any court making such a determination is
hereby requested and empowered to modify such unenforceable provision and to
substitute therefor such limitation or provision of maximum scope as the court
then deems reasonable and judicially enforceable, and the parties further agree
that such substitute provision shall be as enforceable in said jurisdiction as
if set forth initially in this Agreement. Any such substitute provision shall be
applicable only in the jurisdiction in which the original provision was
determined to be unenforceable.
20. Non-Merger. The terms, provisions, covenants and representations
herein contained shall not merge in, but shall survive the Closing hereunder,
and shall continue in full force and effect as though set forth at length in the
closing documents for a period of three (3) years after the date of the Closing.
In the event that Purchaser has a claim against Seller hereunder with respect to
one or more inaccurate representations or warranties, (a) neither Seller nor the
Principals shall have liability to Purchaser for the first $25,000.00 of all
damages arising out of or represented by inaccuracies in representations and
warranties by Seller and the Principals, and (b) the maximum aggregate liability
of Seller and the principals to Purchaser
18
<PAGE>
shall be the sum of (i) the $100,000.00 payable at the Closing, plus (ii) all
amounts payable under the promissory notes delivered at the Closing, plus (iii)
all amounts payable under the consulting agreement between Purchaser and Jay
Kitnick, plus (iv) the lesser of $700,000.00 or the net proceeds of the sale of
Seller's real property; provided, that if any such inaccuracy resulted from a
knowing and intentional misstatement by Seller or the Principals or was made
with intent to defraud, the limitation on Seller's and the Principals' liability
set forth in this sentence shall be ineffective and void, ab initio, as if such
limitation never was set forth in this Agreement.
21. Amendments, Waivers. This Agreement may not be modified, amended, or
supplemented, except by a writing signed by the party sought to be charged
therewith. No waiver by any party, whether express or implied, of any right or
remedy on any one occasion shall bar such party from exercising any of its
rights or remedies on any subsequent occasion, and no waiver of any provision of
this Agreement shall be binding unless it is in a writing signed by the party
against whom enforcement thereof is sought.
22. Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral and written, among the
parties hereto with respect to the subject matter hereof. No party hereto has
made any representation or warranty to any other party except as expressly set
forth in this Agreement.
23. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey applicable to agreements
made and to be performed wholly within such State.
24. Assignment. Neither this Agreement nor any of the parties' rights or
obligations hereunder may be assigned by any party hereto without the prior
written consent of the other parties hereto; provided, that Seller shall have
the right to assign payments due and owing under the promissory notes delivered
by Purchaser to Seller at the Closing to either or both of the Principals,
and/or any shareholder of Seller, and/or the spouse or children of any Principal
or shareholder of Seller, and/or a trust for the benefit of any of them.
25. Arbitration. Any dispute arising out of or relating to this Agreement
shall be settled by arbitration in Essex County, New Jersey in accordance with
the provisions set forth in the New Jersey Arbitration Act, N.J.S.A. 2A:24-1 et
seq. The arbitrator shall be a retired judge selected by the agreement of the
parties
19
<PAGE>
to the dispute, or, if the parties to the dispute cannot agree on an arbitrator,
he shall be a retired judge selected by the assignment judge of Essex County,
New Jersey. The decision of such arbitration shall be final and binding on both
parties, and may be entered as a judgment in any court of appropriate subject
matter jurisdiction located in New Jersey. Notwithstanding the foregoing,
however, in the event that a dispute between the parties involves the failure of
Purchaser to make payments under the promissory notes delivered at the Closing
or under the consulting agreement between Purchaser and Jay Kitnick, based on a
claimed right to a set-off or otherwise, and Purchaser fails to place the amount
in dispute in escrow within thirty (30) days after receipt of written notice
from Seller or the Principals, Seller and the Principals shall have the right to
have such dispute resolved in a court of competent jurisdiction, rather than by
arbitration.
IN WITNESS WHEREOF, this Agreement has been executed by and on behalf of
the parties hereto as of the day and year first above written.
ATTEST: DIPLOMAT AMBASSADOR, INC.
By: /s/ Rudy Slucker
- ----------------------------- -----------------------------
RUDY SLUCKER
ATTEST: WINDSOR OPTICAL, INC.
By: /s/ Jay Kitnick
- ----------------------------- -----------------------------
JAY KITNICK
WITNESS:
/s/ Jay Kitnick
- ----------------------------- --------------------------------
JAY KITNICK, INDIVIDUALLY
/s/ Kenneth Kitnick
- ----------------------------- --------------------------------
KENNETH KITNICK, INDIVIDUALLY
20
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$150,000.00 June 26, 1996
DIPLOMAT AMBASSADOR, INC. ("Purchaser"), for value received, hereby
promises to pay to WINDSOR OPTICAL, INC. ("Windsor") at 1039 Old Ford Road,
Huntingdon Valley, Pennsylvania 19006 or at such other place as may be
designated in writing by Windsor, the principal sum of $150,000.00. Such
principal sum shall be payable, together with interest on the unpaid principal
balance at the rate of 7% per annum, in thirty-six (36) equal monthly
installments of $5,654.23 each in accordance with the amortization schedule
annexed hereto. The first installment payment under this note shall be paid on
January 10, 1997, and the remaining installments shall be paid thereafter on the
10th day of each succeeding month. Principal or interest may be prepaid by
Purchaser at any time, in whole or in part, without premium or penalty, based on
the then-current value of the amount being prepaid, which shall be calculated
assuming interest at the prime rate in effect at the time of prepayment. Amounts
prepaid shall be credited first against accrued but unpaid interest and then
against installments last coming due.
Purchaser's obligations to pay the amounts due pursuant to this note are
subject to a right of set-off pursuant to the agreement dated June 26, 1996 by
and among Windsor, Jay Kitnick, Kenneth Kitnick and Purchaser (the "Asset Sale
Agreement").
The entire principal sum, or the unpaid principal balance thereof, and all
accrued but unpaid interest thereon, shall
21
<PAGE>
become immediately due and payable upon the occurrence of any one of the
following, each of which shall be an "Event of Default":
(i) Default in the payment of any installment of principal or interest for
five (5) days after it fell due which is not cured within ten (10) days after
written notice of such default is given to Purchaser by (a) certified or U.S.
Express mail, return receipt requested, or (b) Federal Express or other
overnight courier which provides a signed receipt for delivery, which notice
shall be deemed to have been given on the date actually delivered.
(ii) The filing by or against Purchaser in any court pursuant to any
statute either of the United States or of any state, of a petition in bankruptcy
or insolvency of for reorganization or for the appointment of a receiver or
trustee of all or a portion of the property of Purchaser, which is not actively
challenged by Purchaser, or is not discharged within sixty (60) days thereof, or
Purchaser making an assignment or similar arrangement for the benefit of
creditors.
Windsor shall be entitled to all costs of collection, including reasonable
attorneys' fees, incurred by Windsor in collecting or attempting to collect (a)
amounts due and payable under this note after the occurrence of an Event of
Default, or (b) amounts improperly set off against amounts due and payable under
this note and not paid into escrow within the time period specified in Section
25 of the Asset Sale Agreement.
The failure of Windsor to exercise any right under this note
22
<PAGE>
shall not be considered a waiver of such right, which may be exercised at any
time and from time to time. The acceptance by Windsor of less than the amount
due and payable hereunder at the time any payment is made hereunder shall not be
considered a waiver of Windsor's right to receive all amounts due and payable
hereunder.
Any dispute arising out of or relating to this note shall be settled by
arbitration in Essex County, New Jersey in accordance with the provisions set
forth in the New Jersey Arbitration Act, N.J.S.A. 2A:24-l et seq. The arbitrator
shall be a retired judge selected by the agreement of the parties to the
dispute, or, if the parties to the dispute cannot agree on an arbitrator, he
shall be a retired judge selected by the assignment judge of Essex County, New
Jersey. The decision of such arbitration shall be final and binding on both
parties, and may be entered as a judgment in any court of appropriate subject
matter jurisdiction located in New Jersey. Notwithstanding the foregoing,
however, in the event that a dispute between Purchaser and Windsor involves the
failure of Purchaser to make payments under this Note, based on a claimed right
to a set-off or otherwise, and Purchaser fails to place the amount in dispute in
escrow within thirty (30) days after receipt of written notice from Windsor,
Windsor shall have the right to have such dispute resolved in a court of
competent jurisdiction, rather than by arbitration.
This note shall be governed by and construed in accordance with the laws
of the State of New Jersey applicable to agreements
23
<PAGE>
made and to be performed wholly within such State.
Presentment, demand, protest, notice of protest, notice of dishonor and
all other notices and demands (other than those specifically required by this
note) are hereby waived.
ATTEST: DIPLOMAT AMBASSADOR, INC.
By:
- ----------------------------- --------------------------------
RUDY SLUCKER
24
<PAGE>
EXHIBIT B
PROMISSORY NOTE
$300,000.00 June 26, 1996
DIPLOMAT AMBASSADOR, INC. ("Purchaser"), for value received hereby
promises to pay to WINDSOR OPTICAL, INC. ("Windsor") at 1039 Old Ford Road,
Huntingdon Valley, Pennsylvania 19006 or at such other place as may be
designated in writing by Windsor, the principal sum of $300,000.00. Such
principal sum shall be payable, together with interest on the unpaid principal
balance at the rate of 7% per annum, in eighty four (84) equal monthly
installments of $4,527.80 each in accordance with the amortization schedule
annexed hereto. The first installment payment under this note shall be paid on
July 20, 1996, and the remaining installments shall be paid thereafter on the
20th day of each succeeding month. Principal or interest may be prepaid by
Purchaser at any time, in whole or in part, without premium or penalty, based on
the then-current value of the amount being prepaid, which shall be calculated
assuming interest at the prime rate in effect at the time of prepayment. Amounts
prepaid shall be credited first against accrued but unpaid interest and then
against installments last coming due.
Purchaser's obligations to pay the amounts due pursuant to this note are
subject to a right of set-off pursuant to the agreement dated June 26, 1996 by
and among Windsor, Jay Kitnick, Kenneth Kitnick and Purchaser (the "Asset Sale
Agreement").
The entire principal sum, or the unpaid principal balance
25
<PAGE>
thereof, and all accrued but unpaid interest thereon, shall become immediately
due and payable upon the occurrence of any one of the following, each of which
shall be an "Event of Default":
(i) Default in the payment of any installment of principal or interest for
five (5) days after it fell due which is not cured within ten (10) days after
written notice of such default is given to Purchaser by (a) certified or U.S.
Express mail, return receipt requested, or (b) Federal Express or other
overnight courier which provides a signed receipt for delivery, which notice
shall be deemed to have been given on the date actually delivered.
(ii) The filing by or against Purchaser in any court pursuant to any
statute either of the United States or of any state, of a petition in bankruptcy
or insolvency of for reorganization or for the appointment of a receiver or
trustee of all or a portion of the property of Purchaser, which is not actively
challenged by Purchaser, or is not discharged within sixty (60) days thereof, or
Purchaser making an assignment or similar arrangement for the benefit of
creditors.
Windsor shall be entitled to all costs of collection, including reasonable
attorneys' fees, incurred by Windsor in collecting or attempting to collect (a)
amounts due and payable under this note after the occurrence of an Event of
Default, or (b) amounts improperly set off against amounts due and payable under
this note and not paid into escrow within the time period specified in Section
25 of the Asset Sale Agreement.
26
<PAGE>
The failure of Windsor to exercise any right under this note shall not be
considered a waiver of such right, which may be exercised at any time and from
time to time. The acceptance by Windsor of less than the amount due and payable
hereunder at the time any payment is made hereunder shall not be considered a
waiver of Windsor's right to receive all amounts due and payable hereunder.
Any dispute arising out of or relating to this note shall be settled by
arbitration in Essex County, New Jersey in accordance with the provisions set
forth in the New Jersey Arbitration Act, N.J.S.A. 2A:24-1 et seq. The arbitrator
shall be a retired judge selected by the agreement of the parties to the
dispute, or, if the parties to the dispute cannot agree on an arbitrator, he
shall be a retired judge selected by the assignment judge of Essex County, New
Jersey. The decision of such arbitration shall be final and binding on both
parties, and may be entered as a judgment in any court of appropriate subject
matter jurisdiction located in New Jersey. Notwithstanding the foregoing,
however, in the event that a dispute between Purchaser and Windsor involves the
failure of Purchaser to make payments under this Note, based on a claimed right
to a set-off or otherwise, and Purchaser fails to place the amount in dispute in
escrow within thirty (30) days after receipt of written notice from Windsor,
Windsor shall have the right to have such dispute resolved in a court of
competent jurisdiction, rather than by arbitration.
This note shall be governed by and construed in accordance
27
<PAGE>
with the laws of the State of New Jersey applicable to agreements made and to be
performed wholly within such State.
Presentment, demand, protest, notice of protest, notice of dishonor and
all other notices and demands (other than those specifically required by this
note) are hereby waived.
ATTEST: DIPLOMAT AMBASSADOR, INC.
By:
- ----------------------------- --------------------------------
RUDY SLUCKER
28
<PAGE>
EXHIBIT C
BILL OF SALE
THIS BILL OF SALE is made and delivered this 26th day of June, 1996 by
WINDSOR OPTICAL, INC., a corporation ("Seller"), to DIPLOMAT AMBASSADOR, INC., a
corporation ("Buyer"), pursuant to an Asset Sale Agreement dated June 26, 1996
(the "Purchase Agreement") between Seller, Jay Kitnick, Kenneth Kitnick and
Buyer, providing for the sale by Seller to Buyer certain of the assets of Seller
used or useful in the operation of Seller's optical business (the "Business").
WITNESSETH, THAT FOR AND IN CONSIDERATION of the mutual promises contained
in the Purchase Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by Seller, and pursuant
to the Purchase Agreement, Seller hereby bargains, sells, grants, assigns,
transfers and conveys unto Buyer and its successors and assigns:
(1) the machinery, equipment, furniture, fixtures and other property
listed in Schedule A attached hereto and by this reference
incorporated herein, and (2) all inventory owned by Seller on the
date hereof, together with any and all rights which Seller holds
under any guaranty or warranty covering any or all of such property.
TO HAVE AND TO HOLD the same unto Buyer and its successors and assigns
forever.
IN ADDITION, from time to time after the date hereof, without further
consideration, Seller shall execute and deliver such other instruments of
assignment, transfer and conveyance and shall take such other action as Buyer
may reasonably request in order more effectively to assign, transfer and convey
to Buyer, and the place Buyer in possession and control of, any of the property
being assigned, transferred and conveyed to Buyer hereunder, or to enable Buyer
to exercise and enjoy all rights and benefits of SELLER with respect thereto.
SELLER HEREBY represents and warrants to, and covenants with, Buyer and
its successors an assigns that immediately prior to the delivery for this Bill
of Sale, Seller was the sole owner of, and had good and marketable title to, all
property assigned, transferred and conveyed to Buyer hereunder; that by this
Bill of Sale, Seller is conveying to Buyer good and marketable title to such
property; that except for Liens (as hereinafter defined) for taxes not yet due
and payable, and Liens securing the "UJB Loan" (as that term is defined in the
Purchase Agreement), such property is conveyed to Buyer hereunder free and clear
of all Liens; that Seller will warrant and defend the title hereby
29
<PAGE>
conveyed to Buyer against the claims of all persons whomsoever; and that the
property assigned, transferred and conveyed to Buyer hereunder includes all
tangible personal property required to be assigned, transferred and conveyed to
Buyer pursuant to the Purchase agreement. As used in this Bill of Sale, the term
"Liens" means all mortgages, pledges, liens, security interest, leases,
conditional sales agreements, charges, restrictions or any other encumbrances
whatsoever.
This Bill of Sale shall inure to the benefit of and be binding upon Seller
and Buyer and their respective successors and assigns.
IT WITNESS WHEREOF, Seller has executed and delivered this Bill of Sale on
the day and year first above written.
SELLER:
WINDSOR OPTICAL, INC.
BY:
- ----------------------------------
JAY KITNICK
ACCEPTED:
BUYER:
DIPLOMAT AMBASSADOR, INC.
BY:
- ----------------------------------
BARRY BUDILOV
30
<PAGE>
SCHEDULE 1
Personal Property
1. Entire contents Ellen Kitnick office except for files pertaining to
current Windsor operations.
2. Personal items in the office of Jay Kitnick such as clock, antique frame
collection, personal plaques, artwork.
3. 1 Laptop computer and color printer and 1 Compaq PC
4. 1 fax machine
5. 1 microwave and 1 toaster.
<PAGE>
SCHEDULE 3(a)(iii)
List of Contracts
Merlin Telephone System
Pitney-Bowes Mailing Machine
Copier Maintenance
IBM-36 Maintenance
<PAGE>
SCHEDULE 4(b)
Windsor Shareholders:
Jay Kitnick
Ketebec Enterprises Ltd.
<PAGE>
SCHEDULE 4(d)
Consents for WINDSOR to transfer trademark licenses attached.
Att: Kenneth Jay Lane
Archie Comics
John Lennon
<PAGE>
SCHEDULE 4(e)
Ownership of Assets
There are no liens except for liens securing the UJB loan.
<PAGE>
SCHEDULE 4(f)
There are no license, permit or approval of any governmental or regulatory body
necessary for the conduct of the business.
<PAGE>
SCHEDULE 4(1)
Suppliers
A complete list of all suppliers during the prior 12 month period is furnished
with Schedule 4(r) titled Supplier Invoice Summary.
<PAGE>
SCHEDULE 4(n)
Financial Statements are attached as required by paragraph 3(n).
<PAGE>
EXHIBIT 10.2
POSSESSION AGREEMENT
THIS AGREEMENT made this 26th day of February, 1997 by and among SUMMIT
BANK (successor by merger of United Jersey Bank and Summit Bank), a banking
corporation organized and existing under the laws of the State of New Jersey,
with a location at 750 Walnut Avenue, Cranford, New Jersey 07016 ("Summit"), and
EDWARD KAUZ, an individual and BARBARA KAUZ, an individual with an address of 21
Wigwam Road, Locust, New Jersey (herein collectively "Kauz"), and RENAISSANCE
EYEWEAR, INC., located at 50 South Avenue, Cranford, New Jersey 07016 (the
"Borrower").
W I T N E S S E T H:
WHEREAS, the Borrower and Summit (formerly known as United Jersey Bank and
United Jersey Bank/Central, N.A.) are parties to a commercial lending
relationship as evidenced by the Amended and Restated Loan and Security
Agreement dated December 20, 1994, as amended, modified and extended from time
to time (the "Loan Agreement"), pursuant to which Summit made the following
loans to Borrower (hereinafter collectively the "Loans" or singularly, a "Loan")
and Borrower agreed to repay all such Loans and granted to Summit a security
interest in and to certain assets of Borrower, all in accordance with the terms
thereof:
1. Revolving Loan of $4,250,000 evidenced by the Amended and Restated Secured
Revolving Note dated as of January 31, 1997, as amended, modified and
extended from time to time;
2. Term Loan of $760,000 evidenced by the Amended and Restated Secured
Installment Note dated June 6, 1996, as amended, modified and extended
from time to time; and
3. Term Loan of $265,000 evidenced by a Promissory Note dated September 30,
1992, as amended, modified and extended from time to time;
WHEREAS, the Loans are all cross collateralized and provide that a default
in respect of any one Loan is a default under all of the Loans;
WHEREAS, there has occurred one or more Events of Default (as defined in
the Loan Agreement) on all of the Loans;
WHEREAS, the Borrower has agreed, pursuant to the provisions of N.J.S.A.
12:9-503 and 12:9-504, to turn over and deliver to Summit the Collateral (as
hereinafter defined) pledged to Summit as security for the Loans;
<PAGE>
WHEREAS, Edward Kauz is the holder of the majority of the voting stock of
the Borrower;
WHEREAS, Summit, the Borrower and Kauz seek to memorialize their
agreements concerning the turn over and delivery of possession of the Collateral
by this writing; and
WHEREAS, Edward Kauz is a guarantor of the obligations of Borrower to
Summit and the Kauz have pledged certain cash collateral to Summit to secure the
obligations of Borrower to Summit;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration the
receipt of which is hereby acknowledged, it is agreed as follows:
1. DEFINITIONS:
For the purposes of this Agreement the following definitions shall apply
to the terms set forth below:
(a) The term "Account", "Account Receivable" or "Accounts Receivable"
shall mean, in addition to the definition of account contained in the Uniform
Commercial Code of the State of New Jersey, any and all obligations of any kind
at any time due and/or owing to Borrower (as defined below) and all rights of
Borrower to receive payment or any other consideration (whether classified under
the Uniform Commercial Code of the State of New Jersey or any other State as
accounts, contract rights, chattel paper, general intangibles, or otherwise)
including without limitation, invoices, contract rights, accounts receivable,
general intangibles, leases, choses-in-action, notes, drafts, acceptances,
instruments and all other debts, obligations and liabilities in whatever form
owing to Borrower from any person, firm, governmental authority, corporation or
any other entity, all security therefore, and all Borrower's rights to goods
sold (whether delivered, undelivered, in transit or returned), which may be
represented thereby, whether now existing or hereafter arising, together with
all proceeds and products of any and all of the foregoing.
(b) The term "Agreement" shall mean this Possession Agreement and any
modification, amendment or change hereinafter made, in writing, to this
Possession Agreement.
(c) The term "Borrower" shall mean Renaissance Eyewear, Inc., a
corporation of the State of New Jersey.
(d) The term "Collateral" shall mean all assets of Borrower pledged to
Summit as security for the Loans, including, but not limited to, the Inventory,
Accounts Receivable, General Intangibles, Equipment and Machinery.
(e) The term "Equipment" shall mean, in addition to the definition thereof
contained in the Uniform Commercial Code of the State of New Jersey, all
equipment, machinery, fixtures,
2
<PAGE>
and all other tangible assets, including, but not limited to, any and all
computer programs, tapes, discs and data processing software related thereto,
and all replacements, repairs, modifications, alterations, additions, controls
and operating accessories therefore, all substitutions and replacements
therefore, and all accessions and additions thereto and all proceeds and
products of the foregoing, whether now owned or hereafter acquired by Borrower.
(f) The term "General Intangibles" shall mean, in addition to the
definition thereof contained in the Uniform Commercial Code of the State of New
Jersey, all of the Borrower's now owned or hereafter acquired choses-in-action,
causes of action and all other intangible personal property including, without
limitation, corporate or other business records, inventions, designs, patents,
patent applications, trademarks, trademark applications, trade names, trade
secrets, good will, registrations, copyrights, licenses, franchises, customer
lists, tax refunds, tax refund claims, insurance claims, rights and claims
against carriers and shippers and rights to indemnification.
(g) The term "Inventory" shall mean, in addition to the definition thereof
contained in the Uniform Commercial Code of the State of New Jersey, all goods,
merchandise or other tangible personal property held by Borrower for sale or
lease or to be furnished under labels and other devices, the names or marks
affixed thereto for purposes of selling or identifying the same or the seller or
manufacturer thereof, and all right, title and interest of Borrower therein and
thereto, including, but not limited to, any and all computer programs, tapes,
discs and data processing software related thereto, all raw materials, work or
goods in process or materials and supplies of every nature used, consumed or to
be consumed in the Borrower's business, all packaging and shipping materials,
and all proceeds and products of any of the foregoing, whether now owned or
hereafter acquired by Borrower, and wherever located.
(h) The term "Loan Documents" shall mean the Amended and Restated Loan and
Security Agreement dated December 20, 1994, the Amended and Restated Secured
Revolving Note dated as of January 31, 1997 in the initial principal sum of
$4,250,000, the Amended and Restated Secured Installment Note dated June 6, 1996
in the initial principal sum of $760,000, and the Promissory Note dated
September 30, 1992 in the initial principal sum of $265,000 and related
documents, all as amended, modified and extended from time to time by and
between Summit and Borrower.
(i) The term "Machinery" shall mean and include, without limitation, all
inanimate mechanisms for utilizing or applying power including the appurtenances
thereto used by or for Borrower in the operation of its business and all
accessories, substitutions, additions, replacements and parts thereof, whether
now owned or hereafter acquired.
(j) The term "Principals" shall mean Edward Kauz and Barbara Kauz and any
other officer, director or shareholder of Borrower.
(k) The term "Summit" shall mean Summit Bank, a banking corporation
organized and existing under the laws of the State of New Jersey with an address
at 750 Walnut Avenue, Cranford, New Jersey 07016.
3
<PAGE>
(l) The term "Turn Over Collateral" shall mean the Accounts Receivable,
Inventory, Machinery and Equipment, General Intangibles and all other Collateral
granted to Summit by Borrower as security for the Loans.
2. AMOUNT DUE:
Borrower hereby acknowledges and agrees that, as of February 26, 1997,
there is due and owing to Summit on the Loans, without offset, counterclaim or
defense, the following principal balances, interest and late charges:
LOANS;
a) $4,250,000 Amended and Restated
Secured Revolving Note: $3,067,099.16
b) $760,000 Amended and Restated Secured $ 345,094.45
Installment Note:
c) $265,000 Promissory Note: $ 35,607.47
-------------
Amount due: $3,447,801.08
In addition to the balance due on the Loans as set forth above, there is due and
owing from the Borrower to Summit all interest, legal fees and expenses, and
other charges as provided for under the Loan Documents accruing from the date
hereof.
3. DEFAULT AND TURN OVER:
Borrower hereby acknowledges that one or more Events of Default have
occurred under all of the Loans and that Summit has the right to possession of
the Collateral under the terms of the Loan Documents and in furtherance thereof
Borrower has agreed and does hereby voluntarily deliver to Summit the Turn Over
Collateral. It is understood and agreed that, with regard to the Turn Over
Collateral, Summit is entitled to exercise all rights and remedies it has under
the terms of the Loan Documents, at law or in equity, including the right to
sell same in accordance with the provisions of the Uniform Commercial Code as in
effect in the State of New Jersey.
4. ACKNOWLEDGMENT AND WAIVER:
Kauz and the Borrower waive any and all rights they may have under
Sections 9-504 and 9-506 of the Uniform Commercial Code of the State of New
Jersey, including, without limitation, the right to receive notification of sale
of the Collateral. Kauz hereby consent to and approve of the actions
contemplated herein, specifically including the delivery of the Collateral to
Summit by Borrower. Kauz and Borrower hereby acknowledge that Summit intends to
sell the Turn Over Collateral to Diplomat Ambassador, Inc. or another third
party at a private sale and hereby consent to and approve of any actions taken
by Summit in furtherance thereof.
4
<PAGE>
5. LOAN AGREEMENTS REMAIN IN FULL FORCE AND EFFECT:
Acceptance of the Turn Over Collateral by Summit shall not discharge,
release, extinguish or operate as a compromise of the Loans or of Borrower's or
any guarantor's obligations to Summit. The Loan Documents shall remain in full
force and effect.
6. INDEMNIFICATION:
For acts from and after the date of this Agreement, Borrower and Edward
Kauz will, and hereby do, indemnify Summit and any of its officers, directors,
employees or agents and hold them harmless, jointly and severally, against any
liability whatsoever (including environmental liability but excluding acts of
willful misconduct or gross negligence) incurred by it or them resulting from
Summit's accepting possession of the Turn Over Collateral, and any actions taken
in respect of or affecting the Turn Over Collateral, including but not limited
to damage to or destruction of the Turn Over Collateral from any agency,
diminution in value to the Turn Over Collateral, personal injury to any person
or injury to property and all of their expenses such as court costs and
reasonable attorneys fees incurred in connection with having accepted possession
of the Turn Over Collateral.
7. RELEASE:
Borrower and Kauz hereby, jointly and severally, waive and relinquish any
and all claims, causes of action, damages and demands whatsoever, whether known
or unknown, at law or in equity, that they have or may claim to have against
Summit, arising out of, or resulting from their lending relationship with Summit
or its predecessors United Jersey Bank and United Jersey Bank/Central, N.A.,
including, but not limited to the Loan Documents.
8. GUARANTY; CASH COLLATERAL AND OTHER TURNOVER COLLATERAL:
It is specifically understood and agreed that the guaranty of Edward Kauz
and the pledge of the cash collateral by Kauz shall remain in full force and
effect. Without in any way limiting the generality of the immediately preceding
sentence, to the extent that the sale of any of the Turn Over Collateral to
Diplomat Ambassador, Inc. or any other third party shall be challenged or
reversed by any court of competent jurisdiction or should any payment or other
value received by Summit of any of the obligations due under the Loan Documents
be rescinded or otherwise returned by Summit, Edward Kauz's obligations under
said guaranty and the pledge of the cash collateral by Kauz shall remain in full
force and effect or be reinstated, if previously terminated. It is further
agreed that the cash collateral pledged by Kauz to Summit, together with all
other Turn Over Collateral, if any, that is not sold by Summit to Diplomat
Ambassador, Inc. or another third party, shall continue to be held by Summit for
a period of 93 days from the date hereof. If by the 93rd day from the date
hereof, no action has been instituted to set aside the sale of the Turn Over
Collateral or otherwise effect said sale, Summit shall return said cash
collateral to Kauz and said other Turn Over Collateral not previously sold, if
any, to the Borrower.
5
<PAGE>
9. RELIEF FROM AUTOMATIC STAY:
To induce Summit to enter into this Agreement, Borrower hereby
acknowledges that it has no equity in the Turn Over Collateral in excess of the
indebtedness owed to Summit under the Loans and that upon filing of a petition
in bankruptcy by or against Borrower, Summit shall thereupon be entitled to
relief from the Automatic Stay imposed by 11 USC ss.362 or otherwise, and
Borrower hereby irrevocably consents to relief from any Automatic Stay imposed
and the exercise of the rights and remedies otherwise available to Summit under
the Loan Documents, at law or in equity, and Borrower hereby waives any
objections that it may have to any such relief.
10. BINDING EFFECT:
This Agreement is binding upon and inures to the benefit of, and is
enforceable by the parties, their heirs, executors, legal representatives,
successors and assigns.
11. WAIVER OF JURY DEMAND:
SUMMIT, BORROWER AND KAUZ HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY IN
ANY LITIGATION RELATING TO THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER
AGREEMENTS BETWEEN THEM RELATED TO THIS AGREEMENT.
12. ENTIRE AGREEMENT:
This Agreement sets forth the entire, final and complete agreement and
understanding of the parties with respect to the subject matter contained
herein; any and all prior discussions, negotiations and understandings related
to the matters referred to herein are hereby merged into this Agreement;
provided however nothing contained herein shall be deemed a waiver of any rights
granted to Summit under the Loan Documents and all such agreements remain in
full force and effect except as herein specifically modified.
13. APPLICABLE LAW/JURISDICTION:
(a) This Agreement shall be governed, interpreted and enforced in
accordance with the laws of the State of New Jersey.
(b) The parties hereto hereby consent to the jurisdiction in the Courts of
the State of New Jersey or of the Federal District Court for the District of New
Jersey and agree that no defense of forum non conveniens shall be asserted in
any action brought in such courts.
6
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their authorized corporate officers and caused their hands and
seals to be affixed hereto the date and year first written above.
SUMMIT BANK
/s/ Frederick C. Scogno
-------------------------------------
By: Frederick C. Scogno, Vice President
ATTEST: RENAISSANCE EYEWEAR, INC.
/s/Edward Kauz
- ------------------------------------ -------------------------------------
By: Barbara Kauz, Secretary By: Edward Kauz, President
WITNESS
/s/ Michael Turner /s/ Edward Kauz
- ------------------------------------ -------------------------------------
Michael Turner, Esq. EDWARD KAUZ, Individually and as the
holder of the majority voting stock of
Renaissance Eyewear, Inc.
WITNESS:
/s/ Michael Turner, Esq.
- ------------------------------------ -------------------------------------
Michael Turner, Esq. BARBARA KAUZ, Individually
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their authorized corporate officers and caused their
hands and seals to be affixed hereto the date and year first written above.
SUMMIT BANK
/s/ Frederick C. Scogno
-------------------------------------
By: Frederick C. Scogno, Vice President
ATTEST: RENAISSANCE EYEWEAR, INC.
/s/ Barbara Kauz /s/Edward Kauz
- ------------------------------------ -------------------------------------
By: Barbara Kauz, Secretary By: Edward Kauz, President
WITNESS
/s/ Mercedes Rodriquez /s/ Edward Kauz
- ------------------------------------ -------------------------------------
Mercedes Rodriquez EDWARD KAUZ, Individually and as the
Notary Public of New Jersey holder of the majority voting stock of
My Commission Expires July 7, 1998 Renaissance Eyewear, Inc.
Sworn to and subscribed before me
this 26th day of Febuary 1997
WITNESS:
/s/ Barbara Kauz
- ------------------------------------ -------------------------------------
BARBARA KAUZ, Individually
7
<PAGE>
EXHIBIT 10.3
COLLATERAL SALE AGREEMENT
THIS COLLATERAL SALE AGREEMENT, made effective as of the 26th day of
February, 1997, by and between DIPLOMAT AMBASSADOR, INC., a Pennsylvania
corporation, having an office at 1010 Arch Street, Philadelphia, Pennsylvania
19107 ("Buyer"), and SUMMIT BANK, successor by merger of United Jersey Bank and
Summit Bank, having an office at 750 Walnut Avenue, Cranford, New Jersey 07016
(the "Bank").
BACKGROUND
A. RENAISSANCE EYEWEAR, INC., a corporation of the State of New Jersey
("Renaissance"), is indebted to Bank as evidenced by (i) a certain $4,250,000.00
Amended and Restated Secured Revolving Note dated as of January 31, 1997 (the
"Revolving Note"); (ii) a certain $760,000.00 Amended and Restated Secured
Installment Note dated June 6, 1996 (the "Term Note"); (iii) a Term Loan of
$265,000 evidenced by a Promissory Note dated September 30, 1992 ("Promissory
Note"); and (iv) a certain Amended and Restated Loan and Security Agreement
dated December 20, 1994 as amended as of December 20, 1994, February 23, 1996
and June 6, 1996 (the "Security Agreement"). The Revolving Note, Term Note,
Promissory Note, Security Agreement and all documents related thereto (as the
same have been amended, modified, restated and replaced) are herein collectively
referred to as the "Loan Documents."
B. Renaissance's obligations under the Loan Documents are secured, inter
alia, by a perfected security interest in all Renaissance's accounts receivable,
inventory, machinery, equipment, returned and repossessed merchandise and other
tangible and intangible personal property (the "Collateral").
C. Renaissance is in default of its obligations under the Loan Documents.
D. Renaissance has voluntarily relinquished possession of the Collateral
to Bank and Bank and Buyer desire to complete a sale of such assets to Buyer in
accordance with Section 9-504 of the Uniform Commercial Code as in effect in the
State of New Jersey (the "UCC") upon and subject to the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants, promises and
agreements contained herein and intending to be legally bound hereby, the
parties hereto agree as follows:
TERMS
1. SALE AND PURCHASE OF COLLATERAL.
(a) Bank hereby agrees to sell to Buyer and Buyer hereby agrees to
purchase from Bank, upon the terms and conditions set forth herein, all Bank's
right, title and interest in and to the Collateral (collectively the "Purchased
Collateral").
<PAGE>
(b) Attached hereto as Exhibit "A" is a list of Collateral prepared by
Buyer which sets forth, without limitation, certain of the Purchased Collateral.
Buyer and Bank acknowledge and agree that the description of inventory,
accounts receivable and other assets on Exhibit "A" is by category and the exact
type and amount may vary as of settlement. Bank makes no representation or
warranty regarding the accuracy of Exhibit "A".
2. EXCLUDED ASSETS: Notwithstanding any provision to the contrary
contained in this Agreement, the Purchased Collateral shall not include, and
Bank shall not transfer, convey or assign, mutual funds, cash or cash
equivalents owned and pledged by Edward Kauz and Barbara Kauz as security for
the obligations of Renaissance.
3. PURCHASE PRICE:
Subject to the provisions of Sections 7 and 8 below, Buyer agrees to pay
to Bank and Bank agrees to accept, as full and complete consideration for Bank's
transfer of its right, title and interest in the Purchased Collateral, pursuant
to Section 9-504 of the UCC, the sum of THREE MILLION FOUR HUNDRED EIGHTY
THOUSAND NINE HUNDRED SIXTY-ONE DOLLAR'S AND TWELVE CENTS ($3,480,961.12) (the
"Purchase Price"), which shall be paid to Bank on the Settlement Date set forth
in Paragraph 4(a) of this Agreement. Upon Bank's receipt of the Purchase Price,
Bank shall execute and deliver to Buyer Uniform Commercial Code Financing
Statements terminating Bank's security interest in the Purchased Collateral.
4. SETTLEMENT.
(a) Settlement hereunder shall take place on or before February 26, 1997
(the "Settlement Date"), at the offices of Pitney, Hardin, Kipp & Szuch, 200
Campus Drive, Florham Park, New Jersey or such other place as Bank and Buyer
agree. The time of settlement and performance of all other terms and conditions
of this Agreement are hereby agreed to be of the essence of this Agreement.
(b) At settlement, Bank shall execute and deliver or cause to be delivered
to Buyer the following:
(i) Bill of Sale transferring all Purchased Collateral;
(ii) A copy of a fully executed Possession Agreement signed by
Renaissance, Edward Kauz and Barbara Kauz (Edward Kauz and
Barbara Kauz collectively, "the Kauz"), setting forth the
agreement of Renaissance to voluntarily relinquish to Bank
possession all of the Collateral including, without
limitation, the Purchased Collateral identified in Exhibit
"A"; and
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<PAGE>
(iii) A copy of a fully executed Affidavit of Renaissance and the
Kauz relating to issues concerning the Loan Documents and
other matters relating to the turnover of the Purchased
Collateral.
(c) At settlement, Buyer shall deliver to Bank the following:
(i) $3,480,961.12, in immediately available funds;
(ii) A good standing certificate; and
(iii) A certified resolution of the Buyer's Board of Directors
authorizing the purchase by Buyer of the Purchased Collateral.
5. REPRESENTATIONS AND WARRANTIES OF BANK. As an inducement to Buyer to
enter into this Agreement, knowing and intending that Buyer is relying hereon in
entering into this Agreement and the transactions contemplated hereby, Bank
represents and warrants to Buyer as follows:
(a) Bank, for itself and its successors and assigns, does hereby warrant
and represent that the sale of Purchased Collateral is being conducted under the
provisions of ss. 9-504 of the UCC, provided, however, Bank makes no
representations as to the ownership of the Purchased Collateral, the commercial
reasonableness of the sale or the quality or quantity of the Purchased
Collateral, or any warranty as to the fitness for a particular purpose. The sale
is "as is" and "where is" and without recourse.
(b) Bank, for itself and its successors and assigns, does hereby warrant
and represent that Bank is duly and validly authorized and empowered to make,
execute and deliver this Agreement and any and all documents referenced therein
and to enter into the covenants, promises, and undertakings therein contained.
(c) Except as herein otherwise provided, Bank, for itself and its
successors and assigns, does hereby warrant and represent that, in the State of
New Jersey, it has, at this date, a duly perfected security interest in the
Purchased Collateral located in New Jersey on this date; provided however, Bank
makes no representation or warranty as to the perfection of its security
interest in any of the Purchased Collateral which requires perfection by means
other than filing pursuant to the provisions of the UCC.
(d) Bank, for itself and its successors and assigns, does hereby warrant
and represent that it has not received notice from any person, corporation or
other entity claiming that it has a lien on any of the Purchased Collateral.
6. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants
to Bank that Buyer has full power, authority and legal right to own, operate and
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<PAGE>
purchase the Purchased Collateral and to otherwise comply with the terms and
provisions of this Agreement. Buyer is not subject to any other agreements or
other arrangements which would prevent or interfere with the purchase of the
Purchased Collateral pursuant to the terms and provision of this Agreement.
Buyer does hereby warrant and represent that Buyer is duly and validly
authorized and empowered to make, execute and deliver this Agreement and any and
all documents referenced therein and to enter into the covenants, promises and
undertakings herein contained. These representations and warranties shall
survive settlement hereunder.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER.
The obligations of Buyer to be performed at settlement shall be subject to
the fulfillment on or before such settlement of all of the following conditions,
except those waived by Buyer:
(a) Bank shall have performed its obligations hereunder.
(b) No litigation or other proceeding shall be threatened or pending
challenging the legality of this Agreement.
(c) Buyer shall have completed its due diligence to its reasonable
satisfaction.
(d) Renaissance shall have voluntarily relinquished possession of the
Purchased Collateral to enable Bank to effectuate the transfer of the Purchased
Collateral as contemplated by this Agreement.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BANK.
The obligations of Bank to be performed at settlement shall be subject to
the fulfillment on or before such settlement of all of the following conditions,
except those waived by Bank:
(a) Buyer shall have performed its obligations hereunder.
(b) Renaissance shall have voluntarily relinquished possession of the
Purchased Collateral to Bank.
(c) No litigation or other proceeding shall be threatened or pending
challenging the legality of this Agreement or the right of Bank to complete the
transfer of the Purchased Collateral as contemplated hereunder.
(d) Renaissance has delivered to Bank its certification, in form and
substance satisfactory to Bank, of its efforts to sell the Purchased Collateral
to other parties.
9. FURTHER ASSURANCES AND EXECUTIONS: The Bank covenants and agrees with
Buyer, its successors and assigns, that the Bank will do, execute and deliver or
cause to be done, executed, acknowledged and delivered any and all such further
acts, instruments,
-4-
<PAGE>
papers and documents as may be necessary to carry out and effectuate the intent
and purposes of this Agreement. Buyer shall pay or reimburse Bank's reasonable
unpaid legal fees and costs relating to this transaction upon presentation of
Bank's counsels' bill(s).
10. NO ASSUMPTION OF LIABILITIES: It is agreed and understood that Buyer
does not assume or agree to pay, satisfy, discharge or perform, and shall not be
deemed by virtue of the execution and delivery of this Agreement, or of any
instrument, paper or document delivered by or to it, or as a result of the
consummation of the transaction contemplated hereby, to have assumed, or to have
agreed to pay, satisfy, discharge or perform, any liability, obligation or
indebtedness, whether absolute, accrued, or contingent, whether filed or
asserted prior to or after the date hereof and whether arising out of or in any
way connected with the Purchased Collateral or the business of Renaissance or
otherwise.
11. NOTICES
(a) All notices to be given hereunder shall be in writing and shall be
deemed to have been given or made when presented for delivery by facsimile
transfer, Federal Express or other recognized same day or overnight delivery
service, or hand delivered by messenger, addressed as follows:
To Buyer: Diplomat Ambassador, Inc.
1010 Arch Street
Philadelphia, PA 19107
Fax Number: (215) 925-0204
With a copy to: Adelman Lavine Gold and Levin,
a Professional Corporation
1900 Two Penn Center Plaza
Philadelphia, PA 19102-1799
Attention: Kevin W. Walsh, Esq.
Fax Number: (215) 557-7922
To Bank: Summit Bank
750 Walnut Avenue
Cranford, New Jersey 07016
Attention: Frederick C. Scogno, VP
Fax Number: (609) 486-4129
With a copy to: Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932-0950
Attention: Peter A. Forgosh, Esq.
Fax Number (201) 966-1550
-5-
<PAGE>
(b) Bank or Buyer may designate a different person or entity or
place to or at which notices shall be given by delivering a written notice to
that effect to the other party in conformity with the provisions hereof.
12. BROKER: Each party represents and warrants to the other that it
has not employed or retained any agent, broker, person or firm in connection
with the transactions contemplated by this Agreement which would entitle such
person to any broker's or finder's fees or any commission from Bank or Buyer
or from any person controlling, controlled by or under common control with
the Bank or Buyer in connection with the transaction comtemplated herein.
Bank and Buyer agree to indemnify each other from and against any claim by
any such broker or finder which indemnification and hold harmless agreement
shall survive closing.
13. TIME OF THE ESSENCE: Time is of the essence with regard to all
aspects of this Agreement.
14. BINDING EFFECT: ASSIGNMENT: This Agreement shall be binding upon
and inure to the benefit of the parties hereto, their successors and assigns.
Buyer may not assign its rights and obligations under this Agreement without
the prior written consent of the Bank.
15. SEVERABILITY: The invalidity or unenforceability of any provisions
of this Agreement shall not effect the validity or enforceability of any
other provision of this Agreement.
16. RECORDING: This Agreement shall not be recorded in any office of
record.
17. CAPTIONS AND EXHIBITS: The captions of the paragraphs in this
Agreement are for convenience only and shall not control or affect the
meaning or construction of any of the terms or provisions of this Agreement.
The Exhibits attached to this Agreement are an integral part of this
Agreement.
18. CHOICE OF LAW: This Agreement shall be governed by, construed and
interpreted in accordance with the laws of the State of New Jersey.
19. ENTIRE AGREEMENT: This Agreement constitutes and expresses the
whole agreement of the parties hereto with reference to the subject matter
hereof and to all the matters or things herein provided for or hereinafter
discussed or mentioned in reference to the subject matter hereof; all prior
promises, undertakings representations, agreements, understandings and
arrangements relative thereto being herein merged. This Agreement may not be
modified, altered amended or changed, except by an instrument in writing duly
and validly executed by the parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
intending to be legally bound hereby, the day and year first above written.
DIPLOMAT AMBASSADOR, INC.
By: /s/ Barry Budilov
-----------------------------
Name/Title: President
---------------------
[CORPORATE SEAL]
SUMMIT BANK
/s/ Frederick C. Scogno
--------------------------------
By: Frederick C. Scogno
Vice President
-7-
<PAGE>
Exhibit A
1. All cash, cash equivalents & cash and other accounts
2. Accounts Receivable
3. Customer Consignment
4. Salesmen Samples
5. Prepaid Expenses
6. Equipment
7. Furniture & Fixtures
8. Trade Name:
Renaissance Eyewear
9. Goodwill
10. Inventory
11. Work-In-Process
12. Raw Materials
13. Customer Lists
14. All other Tangible and Intangible personal property constituting the
Purchased Collateral (as defined in the Collateral Sale Agreement)
<PAGE>
FORM OF
STOCK PURCHASE WARRANT
To Purchase Common Stock of
AMBASSADOR EYEWEAR GROUP, INC.
<PAGE>
Void after 5:00 p.m. New York Time, on , 2002.
Warrant to Purchase Shares of Common Stock.
WARRANT TO PURCHASE COMMON STOCK
OF
AMBASSADOR EYEWEAR GROUP, INC.
This is to Certify That, FOR VALUE RECEIVED, Hampshire Securities
Corporation, or assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from Ambassador Eyewear Group, Inc., a Delaware
corporation ("Company"), 200,000 fully paid, validly issued and nonassessable
shares of Common Stock, par value $.01 per share, of the Company ("Common
Stock") at a price of $ per share at any time or from time to time during
the period from , 1997 to ,
2002, but not later than 5:00 p.m. New York City Time, on ,
2002. The number of shares of Common Stock to be received upon the exercise of
this Warrant and the price to be paid for each share of Common Stock may be
adjusted from time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price of
a share of Common Stock in effect at any time and as adjusted from time to time
is hereinafter sometimes referred to as the "Exercise Price". This Warrant,
together with warrants of like tenor, constituting in the aggregate warrants
(the "Warrants") to purchase 200,000 shares of Common Stock, was originally
issued pursuant to an underwriting agreement between the Company and Hampshire
Securities Corporation ("Hampshire"), in connection with a public offering
through Hampshire of 2,000,000 shares of Common Stock, in consideration of
$200.00 received for the Warrants.
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time on or after , 1997 and until
_________ 2002, subject to the provisions of Section (j)(2) hereof; PROVIDED,
HOWEVER, that (i) if either such day is a day on which banking institutions in
the State of New York are authorized by law to close, then on the next
succeeding day which shall not be such a day, and (ii) in the event of any
merger, consolidation or sale of substantially all the assets of the Company as
an entirety, resulting in any distribution to the Company's stockholders, prior
to _________, 2002, the Holder shall have the right to exercise this Warrant
commencing at such time through , 2002 into the kind and amount of
shares of Common Stock and other securities and property (including cash)
receivable by a holder of the number of shares of Common Stock into which this
Warrant might have been exercisable immediately prior thereto. This Warrant may
be exercised by presentation and surrender hereof to the Company at its
principal office, or at the office of its stock transfer agent, if any, with the
2
<PAGE>
Purchase Form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of Warrant Shares specified in such form. As soon
as practicable after each such exercise of the warrants, but not later than
seven (7) days from the date of such exercise, the Company shall issue and
deliver to the Holder a certificate or certificate for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the rights of the Holder thereof to purchase the balance of
the Warrant Shares purchasable thereunder. Upon receipt by the Company of this
Warrant at its office, or by the stock transfer agent of the Company at its
office, in proper form for exercise, the Holder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books or the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a National Securities Exchange
or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ system, the current market value shall be
the last reported sale price of the Common Stock on such exchange or
system on the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average closing
bid and asked prices for such day on such exchange or system; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current market value shall be the mean of the
last reported bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than book value
thereof as at the end of the most recent fiscal year of the Company
ending prior to the date of the exercise of the Warrant, determined in
such reasonable manner as may be prescribed by the Board of Directors
of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender
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<PAGE>
hereof to the Company or at the office of its stock transfer agent, if any, for
other warrants of different denominations entitling the Holder thereof to
purchase in the aggregate the same number of shares of Common Stock purchasable
hereunder. This Warrant is not transferable (other than by will or pursuant to
the laws of descent and distribution), and may not be assigned or hypothecated,
for a period of 12 months from ________, 1997, except to and among the officers
of Hampshire except as provided under Subsection (a)(ii) hereof. Upon surrender
of this Warrant to the Company at its principal office or at the office of its
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant in the name of the assignee
named in such instrument of assignment and this Warrant shall promptly be
canceled. This Warrant may be divided or combined with other warrants which
carry the same rights upon presentation hereof at the principal office of the
Company or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(l) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date
of such subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to
such action, and the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event listed above
shall occur.
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<PAGE>
(2) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock) at a price (the "Subscription Price")
(or having a conversion price per share) less than the current market
price of the Common Stock (as defined in Subsection (8) below) on the
record date mentioned below, or less than the Exercise Price on such
record date, the Exercise Price shall be adjusted so that the same
shall equal the lower of (i) the price determined by multiplying the
Exercise Price in effect immediately prior to the date of such
issuance by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common Stock
which the aggregate offering price of the total number of shares of
Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current
market price per share of the Common Stock, and the denominator of
which shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of additional shares of
Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible) or (ii) in the
event the Subscription Price is equal to or higher than the current
market price but is less than the Exercise Price, the price determined
by multiplying the Exercise Price in effect immediately prior to the
date of issuance by a fraction, the numerator of which shall be the
sum of the number of shares outstanding on the record date mentioned
below and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock
so offered (or the aggregate conversion price of the convertible
securities so offered) would purchase at the Exercise Price in effect
immediately prior to the date of such issuance, and the denominator of
which shall be the sum of the number of shares of Common Stock
outstanding on the record date mentioned below and the number of
additional shares of Common Stock offered for subscription or purchase
(or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively whenever such rights or
warrants are issued and shall become effective immediately after the
record date for the determination of Stockholders entitled to receive
such rights or warrants; and to the extent that shares of Common Stock
are not delivered (or securities convertible into Common Stock are not
delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would
then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the
number of shares of Common Stock (or securities convertible into
Common Stock) actually delivered.
(3) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding
cash dividends or distributions and dividends or distributions
referred to in Subsection (1) above) or subscription rights or
warrants (excluding those referred to in Subsection (2) above), then
in each such case the Exercise Price in effect thereafter shall be
determined by
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<PAGE>
multiplying the Exercise Price in effect immediately prior thereto by
a fraction, the numerator of which shall be the total number of shares
of Common Stock outstanding multiplied by the current market price per
share of Common Stock (as defined in Subsection (8) below), less the
fair market value (as determined by the Company's Board of Directors)
of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total
number of shares of Common Stock outstanding multiplied by such
current market price per share of Common Stock. Such adjustment shall
be made successively whenever such a record date is fixed. Such
adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date for the
determination of Stockholders entitled to receive such distribution.
(4) In case the Company shall issue shares of its Common Stock,
excluding shares issued (i) in any of the transactions described in
Subsection (1) above, (ii) upon exercise of options granted to the
Company's employees under a plan or plans adopted by the Company's
Board of Directors and approved by its Stockholders, if such shares
would otherwise be included in this Subsection (4), (but only to the
extent that the aggregate number of shares excluded hereby and issued
after the date hereof, shall not exceed 5% of the Company's Common
Stock outstanding at the time of any issuance), (iii) upon exercise of
options and warrants outstanding at _________, 2002, and this Warrant
and (iv) to Stockholders of any corporation which merges into the
Company in proportion to their stock holdings of such corporation
immediately prior to such merger, upon such merger, or issued in a
bona fide public offering pursuant to a firm commitment underwriting,
but only if no adjustment is required pursuant to any other specific
subsection of this Section (f) (without regard to Subsection (9)
below) with respect to the transaction giving rise to such rights, for
a consideration per share (the "Offering Price") less than the current
market price per share (as defined in Subsection (8) below) on the
date the Company fixes the offering price of such additional shares or
less than the Exercise Price, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the lower of (i) the
price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of which shall
be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares and the
number of shares of Common Stock which the aggregate consideration
received, determined as provided in Subsection (7) below, for the
issuance of such additional shares would purchase at such current
market price per share of Common Stock, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares or (ii) in the event the
Offering Price is equal to or higher than the current market price per
share but less than the Exercise Price, the price determined by
multiplying the Exercise Price in effect immediately prior to the date
of issuance by a fraction, the numerator of which shall be the number
of shares of
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<PAGE>
Common Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in subsection
(7) below) for the issuance of such additional shares would purchase
at the Exercise Price in effect immediately prior to the date of such
issuance, and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively whenever
such an issuance is made.
(5) In case the Company shall issue any securities convertible into or
exchangeable for its Common Stock, excluding securities issued in
transactions described in Subsections (2) and (3) above, for a
consideration per share of Common Stock (the "Conversion Price")
initially deliverable upon conversion or exchange of such securities
(determined as provided in Subsection (7) below) less than the current
market price per share (as defined in Subsection (8) below) in effect
immediately prior to the issuance of such securities, or less than the
Exercise Price, the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the lower of (i) the price
determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior
to the issuance of such securities and the number of shares of Common
Stock which the aggregate consideration received (determined as
provided in Subsection (7) below) for such securities would purchase
at such current market price per share of Common Stock, and the
denominator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to such issuance and the
maximum number of shares of Common Stock of the Company deliverable
upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate or (ii) in the event the
Conversion Price is equal to or higher than the current market price
per share but less than the Exercise Price, the price determined by
multiplying the Exercise Price in effect immediately prior to the date
of issuance by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior to
the issuance of such securities and the number of shares of Common
Stock which the aggregate consideration received (determined as
provided in subsection (7) below) for such securities would purchase
at the Exercise Price in effect immediately prior to the date of such
issuance, and the denominator of which shall be the sum of the number
of shares of Common Stock outstanding immediately prior to the
issuance of such securities and the maximum number of shares of Common
Stock of the Company deliverable upon conversion on or in exchange for
such securities at the initial conversion or exchange price or rate.
Such adjustment shall be made successively whenever such an issuance
is made.
(6) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to Subsections (1), (2), (3), (4) and (5) above,
the number of Shares
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<PAGE>
purchased upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on the date
hereof and dividing the product so obtained by the Exercise Price, as
adjusted.
(7) For purposes of any computation respecting consideration received
pursuant to Subsections (4) and (5) above, the following shall apply:
(A) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection therewith;
(B) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Company
(irrespective of the accounting treatment thereof), whose
determination shall be conclusive; and
(C) in the case of the issuance of securities convertible into or
exchangeable for shares of Common Stock, the aggregate consideration
received therefor shall be deemed to be the consideration received by
the Company for the issuance of such securities plus the additional
minimum consideration, if any, to be received by the Company upon the
conversion or exchange thereof (the consideration in each case to be
determined in the same manner as provided in clauses (A) and (B) of
this Subsection (7)).
(8) For the purpose of any computation under Subsections (2), (3), (4)
and (5) above, the current market price per share of Common Stock at any
date shall be deemed to be the lower of (i) the average of the daily
closing prices for 30 consecutive business days before such date or (ii)
the closing price on the business day immediately preceding such date. The
closing price for each day shall be the last sale price regular way or, in
case no such reported sale takes place on such day, the average of the last
reported bid and asked prices regular way, in either case on the principal
national securities exchange on which the Common Stock is admitted to
trading or listed, or if not listed or admitted to trading on such
exchange, the average of the highest reported bid and lowest reported asked
prices as reported by NASDAQ, or other similar organization if NASDAQ is no
longer reporting such information, or if not so available, the fair market
price as determined by the Board of Directors.
(9) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents
($.05) in such price; PROVIDED, HOWEVER, that any adjustments which by
reason of this Subsection (9) are not required to be
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<PAGE>
made shall be carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations under this
Section (f) shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Anything in this Section (f)
to the contrary notwithstanding, the Company shall be entitled, but shall
not be required, to make such changes in the Exercise Price, in addition to
those required by this Section (f), as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in
shares of Common Stock, or any subdivision, reclassification or combination
of Common Stock, hereafter made by the Company shall not result in any
federal income tax liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants).
(10) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than 10 days after any request for such
an adjustment by the Holder, cause a notice setting forth the adjusted
Exercise Price and adjusted number of Shares issuable upon exercise of each
Warrant, and, if requested, information describing the transactions giving
rise to such adjustments, to be mailed to the Holders at their last
addresses appearing in the Warrant Register, and shall cause a certified
copy thereof to be mailed to its transfer agent, if any. In the event the
Company does not provide the Holder with such notice and information within
10 days of a request by the Holder, then notwithstanding the provisions of
this Section (f), the Exercise Price shall be immediately adjusted to equal
the lowest Offering Price, Subscription Price or Conversion Price, as
applicable, since the date of this Warrant, and the number of shares of
Common Stock issuable upon exercise of this Warrant shall be adjusted
accordingly. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by
this Section (f), and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(11) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (1) above, the Holder of this Warrant thereafter
shall become entitled to receive any shares of the Company, other than
Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Subsections (1) to
(9), inclusive, above.
(12) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares issuable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as
required by the provisions of the foregoing Section, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office and with its stock transfer agent, if any, an
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<PAGE>
officer's certificate showing the adjusted Exercise Price determined as herein
provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder or
any holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least 15 days prior the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant, or in case of any sale, lease or conveyance to another corporation or
the property of the Company as an entirety), the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance.
Any such provision shall allow for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
In the event that in connection with any such
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<PAGE>
capital reorganization or reclassification, consolidation, merger, sale or
conveyance, additional shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for a security of the
Company other than Common Stock, any such issue shall be treated as an issue of
Common Stock covered by the provisions of Subsection (1) of Section (f) hereof.
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(l) The Company shall advise the Holder of this Warrant or of the
Warrant Shares or any then holder of Warrants or Warrant Shares (such
persons being collectively referred to herein as "holders") by written
notice at least four weeks prior to the filing of any post-effective
amendment to the Company's Registration Statement No. 333-______ on Form
SB-2 ("Registration Statement"), declared effective by the Securities and
Exchange Commission on or of any new registration statement or
post-effective amendment thereto under the Securities Act of 1933, as
amended (the "Act"), covering securities of the Company and will for a
period of six years, commencing one year from the effective date of the
Registration Statement, upon the request of any such holder, include in any
such post-effective amendment or registration statement such information as
may be required to permit a public offering of the Warrants or the Warrant
Shares and maintain the effectiveness thereof for at least 12 months. The
Company shall supply prospectuses and other documents as the Holder may
request in order to facilitate the public sale or other disposition of the
Warrants or Warrant Shares, qualify the Warrants and the Warrant Shares for
sale in such states as any such holder designates and do any and all other
acts and things which may be necessary or desirable to enable such Holders
to consummate the public sale or other disposition of the Warrants or
Warrant Shares, and furnish indemnification in the manner as set forth in
Subsection (3)(C) of this Section (j). Such holders shall furnish
information and indemnification as set forth in Subsection (3)(C) of this
Section (j), except that the maximum amount which may be recovered from the
Holder shall be limited to the amount of proceeds received by the Holder
from the sale of the Warrants or Warrant Shares.
(2) If any majority holder (as defined in Subsection (4) of this
Section (j) below) shall give notice to the Company at any time during the
four year period commencing one year from the effective date of the
Registration Statement to the effect that such holder contemplates (i) the
transfer of all or any part of his or its Warrants and/or Warrant Shares,
or (ii) the exercise and/or conversion of all or any part of his or its
Warrants and the transfer of all or any part of the Warrants and/or Warrant
Shares under such circumstances that a public offering (within the meaning
of the Act) of Warrants and/or Warrant Shares will be involved, and desires
to register under the Act, the Warrants and/or the Warrant Shares, then the
Company shall, within two weeks after receipt of such notice, file a
post-effective amendment to the Registration Statement or a new
registration statement pursuant to the Act, to the end that the Warrants
and/or Warrant Shares may be sold under the Act as promptly as practicable
thereafter and the Company will use its best efforts to cause such
registration to become effective and continue to be effective (current)
(including the taking of such steps as are necessary to obtain the removal
of any stop order) for a period of nine months or until
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<PAGE>
the holder has advised that all of the Warrants and/or Warrant Shares have
been sold; provided that such holder shall furnish the Company with
appropriate information (relating to the intentions of such holders) in
connection therewith as the Company shall reasonably request in writing.
In the event the registration statement is not declared effective under the
Act prior to , 2002, the Company shall extend the expiration
date of the Warrants to a date not less than 90 days after the effective
date of such registration statement. The holder may, at its option, request
the registration of the Warrants and/or Warrant Shares in a registration
statement made by the Company as contemplated by Subsection (1) of this
Section (j) or in connection with a request made pursuant to Subsection (2)
of this Section (j) prior to the acquisition of the Warrant Shares upon
exercise of the Warrants and even though the holder has not given notice of
exercise of the Warrants. The holder may thereafter at its option, exercise
the Warrants at any time or from time to time subsequent to the
effectiveness under the Act of the registration statement in which the
Warrant Shares were included.
(3) The following provision of this Section (j) shall also be
applicable:
(A) Within ten days after receiving any such notice pursuant to
Subsection (2) of this Section (j), the Company shall give notice to the other
holders of Warrants and Warrant Shares, advising that the Company is proceeding
with such post-effective amendment or registration statement and offering to
include therein Warrants and/or Warrant Shares of such other holders, provided
that they shall furnish the Company with such appropriate information (relating
to the intentions of such holders) in connection therewith as the Company shall
reasonably request in writing. Following the effective date of such
post-effective amendment or registration, the Company shall upon the request of
any owner of Warrants and/or Warrant Shares forthwith supply such a number of
prospectuses meeting the requirements of the Act, as shall be requested by such
owner to permit such holder to make a public offering of all Warrants and/or
Warrant Shares from time to time offered or sold to such holder, provided that
such holder shall from time to time furnish the Company with such appropriate
information (relating to the intentions of such holder) in connection therewith
as the Company shall request in writing. The Company shall also use its best
efforts to qualify the Warrant Shares for sale in such states as such majority
holder shall designate.
(B) The Company shall bear the entire cost and expense oL any
registration of securities initiated by it under Subsection (1) of this Section
(j) notwithstanding that Warrants and/or Warrant Shares subject to this Warrant
may be included in any such registration. The Company shall also comply with one
request for registration made by the majority holder pursuant to Subsection (2)
of this Section (j) at its own expense and without charge to any holder of any
Warrants and/or Warrant Shares; and the Company shall comply with one additional
request made by the majority holder pursuant to Subsection (2) of this Section (
j ) at the sole expense of such majority holder. Any holder whose Warrants
and/or Warrant Shares are included in any such registration statement pursuant
to this Section shall, however, bear the fees of his own counsel and any
registration fees, transfer taxes or underwriting discounts or commissions
applicable to the Warrant Shares sold by him pursuant thereto.
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(C) The Company shall indemnify and hold harmless each such
holder and each underwriter, within the meaning of the Act, who may purchase
from or sell for any such holder any Warrants and/or Warrant Shares from and
against any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any post-effective amendment thereto or any
registration statement under the Act or any prospectus included therein required
to be filed or furnished by reason of this Section (j) or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or alleged untrue statement or omission or alleged omission
based upon information furnished or required to be furnished in writing to the
Company by such holder or underwriter expressly for use therein, which
indemnification shall include each person, if any, who controls any such
underwriter within the meaning of such Act; PROVIDED, HOWEVER, that the Company
shall not be obliged so to indemnify any such underwriter or controlling person
unless such underwriter shall at the same time indemnify the Company, its
directors, each officer signing the related registration statement and each
person, if any, who controls the Company within the meaning of such Act, from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement or any prospectus required to be filed or furnished by
reason of this Section (3) or caused by any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or alleged untrue statement or omission based
upon information furnished in writing to the Company by any such underwriter
expressly for use therein.
(D) Neither the giving of any notice by any such majority holder
nor the making of any request for prospectuses shall impose any upon such
majority holder or owner making such request any obligation to sell any Warrants
and/or Warrant Shares, or exercise any Warrants.
(4) The term "majority holder" as used in this Section (j) shall
include any owner or combination of owners of Warrants or Warrant Shares in any
combination if the holdings of the aggregate amount of:
(i) the Warrants held by him or among them, plus
(ii) the Warrants which he or they would be holding if the
Warrants for the Warrant Shares owned by him or among
them had not been exercised,
would constitute a majority of the Warrants originally issued.
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The Company's agreements with respect to Warrants or Warrant Shares in this
Section (j) shall continue in effect regardless of the exercise and surrender of
this Warrant.
AMBASSADOR EYEWEAR GROUP, INC.
By
-----------------------------------
Name:
Title:
[SEAL]
Dated: , 1997
Attest:
- -----------------------------------
Secretary
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PURCHASE FORM
Dated ______, ____
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _______ shares of Common Stock and hereby
makes payment of $_____________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------------------------
Signature
---------------------------------------------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, ___________________hereby sells, assigns and
transfers unto
Name
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(Please typewrite or print in block letters)
Address
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the right to purchase Common Stock represented by this Warrant to the extent of
___________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _________________ Attorney, to transfer
the same on the books of the Company with full power of substitution in the
premises.
Date
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Signature
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
AGREEMENT, made as of the 26th day of June, 1996, by and between DIPLOMAT
AMBASSADOR INC., a Delaware corporation with offices at 1010 Arch Street,
Philadelphia, Pennsylvania 19107 ("Employer"), and KENNETH KITNICK, an
individual residing at ________________________, New Jersey _______
("Employee").
W I T N E S S E T H:
WHEREAS, Employer is engaged in the optical business, including but not
limited to the design, manufacture, importing, and sale of eyewear (the
"Business"); and
WHEREAS, concurrently with the execution and delivery of this Agreement,
Employer is purchasing substantially all of the assets of Windsor Optical, Inc.
(Windsor"), which also is engaged in the Business; and
WHEREAS, Employee is an executive officer and shareholder of Windsor, is
intimately familiar with Windsor's day to day operations, and is acquainted with
Windsor's customers; and
WHEREAS, in connection with the purchase by Employer of Windsor's assets,
and as a material inducement to Employer to purchase such assets, Employee and
Employer have agreed that Employee shall become an employee of Employer on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereby agree as follows:
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1. EMPLOYMENT.
(a) Employer hereby engages Employee as Executive Vice President of
Employer. Employee hereby accepts such employment, undertakes to perform the
duties and services incident to the position of Executive Vice President of
Employer, and such further duties of a similar nature as may be reasonably
required of him by the Board of Directors of Employer, and represents that he is
free to enter into and perform this Agreement and that he will not thereby be in
violation of any agreement or obligation to any other person or entity. In
performing his duties hereunder, Employee shall at all times be subject to the
supervision of the Chairman of the Board, President, and Chief Executive Officer
of Employer and to the authority and control of the Board of Directors of
Employer.
(b) Employee shall devote his full business time, energies, attention
and best efforts to the performance of his duties and services hereunder and to
the promotion of the business and interests of Employer. During the term
hereof, Employee shall not, without the prior written consent of Employer,
accept or undertake any other employment. Nothing set forth in this Agreement
shall be deemed to prohibit Employee from investing his assets in any business
entity, other than a private company in competition with Employer, or from
spending time on charitable or community activities, so long as such activity
does not interfere with the performance of his duties as a full-time employee of
Employer.
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2. COMPENSATION.
(a) Employer shall pay to Employee for all of his duties,
obligations, and services hereunder, a base salary at the rate of $105,000.00
per year for the period commencing on the date of this Agreement and ending
December 31, 1996; a base salary of $110,000.00 for the twelve (12) month period
ending December 31, 1997; a base salary of $115,000.00 for the twelve (12) month
period ending December 31, 1998; and a base salary of $120,000.00 for the twelve
(12) month period ending December 31, 1999. Thereafter, Employer shall pay to
Employee such base salary as Employer and Employee may agree upon prior to the
renewal of the term of this Agreement under Section 7.
(b) Employee shall be eligible to receive such amounts, if any, as
may be awarded to Employee by Employer, in its sole discretion, in recognition
of the character and extent of Employee's performance and contributions to
Employer and the performance of Employer; provided, that, in the event that
Employer grants bonuses to Rudy Slucker or Barry Budilov, or both of them,
Employee shall be entitled to a minimum bonus in an amount equal to five percent
(5%) of the total amount of bonuses granted to Rudy Slucker and Barry Budilov.
A determination regarding bonuses shall be made at least once each calendar
year, and any bonus granted to Employee shall be paid at the same time as
bonuses granted for the same period are paid to other employees of Employer.
(c) Employer shall provide Employee with life, health and disability
benefits in accordance with company group insurance
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programs for executive employees in effect from time to time during the term of
this Agreement, and such other benefits as may be required by this Agreement.
(d) Employer at its options shall either provide Employee with an
automobile chosen by Employee for his use or pay an allowance for an automobile
to Employee, provided that the cost of such automobile to Employer, or the
amount of such allowance, shall not exceed $465.00 per month. In addition,
Employer at its option shall either reimburse Employee for amounts paid by
Employee to insure such automobile, or obtain and maintain corporate insurance
covering such automobile.
(e) Employee shall be entitled to paid vacations in accordance with
Employer's policies for executives with respect thereto, as established by the
Board of Directors of Employer from time to time.
(f) Employee shall be entitled to receive reimbursement for all
reasonable expenses incurred by him in the performance of his duties and
services hereunder, upon presentation to Employer of records sufficient to
permit Employer to deduct such expenses for Federal and state income tax
purposes; provided, that a reasonable maximum amount of reimbursable expenses
may from time to time be fixed in advance by the Board of Directors.
3. PHANTOM STOCK.
(a) For purposes of this Section 3, the term "Sale of Diplomat" shall
mean one of the following transactions, but only if the parties who owned the
outstanding common stock of Employer
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prior to the consummation of such transaction own less than 51% of the
outstanding capital stock of the entity that owns Employer's assets immediately
after the consummation of such transaction: (i) the sale of the outstanding
capital stock of Employer, (ii) the sale of substantially all of the assets of
Employer in a transaction not in the ordinary course of business, or (iii) any
transaction or series of transactions which has a similar effect.
(b) In the event of the Sale of Diplomat, as that term is defined in
Section 3(a), Employer shall pay or cause to be paid to Employee a portion of
the proceeds of the Sale of Diplomat, or the cash value thereof, as if Employee
owned 5% of the stock of Employer issued and outstanding on the date of this
Agreement (adjusted as hereinafter set forth) on the date of the closing of such
transaction.
(c) In the event that a registration statement is filed under the
Securities Act of 1933 for Employer's common stock, and the stock registered
under such registration statement is subsequently offered for sale to the
public, Employee shall have the right to receive from Employer, immediately
prior to such offering of such stock to the public, 5% of the stock of Employer
issued and outstanding on the date of the Agreement, adjusted as hereinafter set
forth.
(d) The number of shares upon which Employee's rights are based
pursuant to this Section 3 shall be appropriately and equitably adjusted to
reflect stock splits, stock dividends, and similar changes in Employer's
outstanding common stock after the
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date of this Agreement to preserve the benefit of Employee's bargain as set
forth in this Section 3. Nothing set forth in this Section shall be deemed to
require that the adjustment provided for herein be made in the event of the
issuance of capital stock by Employer for fair consideration in connection of
Employer with or into another entity, or any similar transaction.
(e) In the event that, before or after the expiration of the term of
this Agreement, Employee engages in criminal conduct in the course of his
employment or other relationship with Employer; or engages or engaged in
fraudulent conduct in connection with the purchase of Windsor by Employer or in
his dealings with Employer before or after the date of this Agreement; or
breaches his obligations under Section 4 or 5 of this agreement, Employer shall
have the option to void the rights granted by Employer to Employee under this
Section 3 by written notice to Employee, and such rights shall be forfeited and
canceled as of the date of this Agreement, as if they had never been granted,
immediately upon the giving of such notice by Employer.
(f) In the event that Employee's employment with Employer, under this
Agreement or otherwise, terminates for any reason, Employee shall sell to
Employer, and Employer shall purchase from Employee, the rights granted by
Employer to Employee under this Section 3 for a purchase price equal to the net
book value per share of such rights, which value shall be determined by
reference to Employer's certified financial statements for the
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fiscal year preceding the year during which such termination occurs.
Notwithstanding the foregoing, however, in the event that Employer terminates
Employee's employment without cause, and a Sale of Diplomat or a public offering
of stock described in Section 3(c) is consummated within ninety (90) days after
the date of such termination, the purchase price for the rights granted by
Employer to Employee under this Section 3 shall be fair market value as
determined in an arbitration proceeding in Essex County, New Jersey by an
arbitrator who is a retired judge selected by the assignment judge of Essex
County, New Jersey. The decision of such arbitration shall be final and binding
on Employer and Employee, and may be entered as a judgment in any court of
appropriate subject matter jurisdiction. This Section shall not apply if
Employee's rights granted under this Section 3 are voided under Section 3(e).
4. TRADE SECRETS AND DOCUMENTS.
(a) For purposes of this Agreement, the term "Trade Secrets" shall
mean the shipping information of Employer, including but not limited to freight
rates; the methods and processes of assembling and distributing Employer's
products, including those in the process of development; Employer's pricing,
customer lists and credit terms and counter-trade arrangements, including those
in the process of completion; Employer's methods and results of the research;
the names of Employer's customers and the products of
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Employer used by each such customer; and any other confidential information or
data relating to Employer's business which is not publicly known.
(b) Employee agrees that he will not, either during his employment by
Employer or at any time after cessation of such employment, impart or disclose
and Trade Secrets to any person, form or corporation other than Employer, or use
any Trade Secrets, directly or indirectly, for his own benefit or for the
benefit of any person, form or corporation other than Employer.
(c) Employee agrees that all memoranda, notes, records, reports, manuals,
charts, formulae, specifications, lists and other documents made, compiled,
received, held, or used by Employee while employed by Employer, concerning any
phase of Employer's business or its Trade Secrets, including without limitation
such items stored on computer-readable media, and all copies thereof, shall be
Employer's property and shall be delivered by Employee to Employer on
termination of Employee's employment or at an earlier time on the request of
Employer.
5. NONCOMPETITION.
(a) For purposes of this Agreement, the term "Customer" shall mean
any person or entity to which Employer has sold goods or provided services
during the two (2) year period prior to the date that Employee's employment with
Employer terminates.
(b) Subject to the provision of Section 5(c), Employee convenants and
agrees that, so long as he is employed by Employer in any capacity whatsoever,
and for a period of one (1) year following
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the termination of his employment with Employer for any reason whatsoever,
Employee shall not, directly or indirectly, individually or in concert with
others or as stockholder, director, officer, partner, member, principal, agent,
employer, employee, or consultant, or in any other individual or representative
capacity:
(i) Call on, solicit, serve, or cater to, or attempt to call on,
solicit, serve, or cater to, any Customer for the purpose of rendering any
service or selling any product competitive with, or usable for substantially the
same purpose as, any service or product provided, manufactured or sold or in the
process of development by Employer; or
(ii) Engage in the business of Employer and/or in the sale or in the
marketing or sale of any service or product competitive with, or usable for
substantially the same purpose as, any service or product provided, manufactured
or sold or in the process of development by Employer.
(c) The provisions of Section 5 (b) shall not apply after the
termination of Employee's employment with Employer if (i) such termination
resulted from the termination of this Agreement by Employer without cause in
breach of the provisions hereof, or (ii) such termination resulted for the
non-renewal of this Agreement by Employer in circumstances where employer would
not have had the right to terminate this Agreement prior to the expiration of
its term, or (iii) such termination resulted from the termination of this
Agreement by Employee under Section 7 (c) of this Agreement, or (iv) such
termination resulted from the non-renewal of this
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Agreement by Employee after Employer refused to pay Employee during the upcoming
renewal term a base salary equal to or greater that Employee's base salary for
the term that was about to expire.
(d) Employee agrees that, so long as he is employed by Employer and
for a period of two (2) years thereafter, he will not directly or indirectly at
any time solicit or induce other employees of Employer to terminate their
agreements or employment with Employer.
6. CONTINUING EFFECT AND ENFORCEMENT OF CERTAIN PROVISIONS.
(a) Employee hereby acknowledges that, except as otherwise expressly
set forth in this Agreement, his obligations under Sections 3(f), 4, and 5 will
continue in effect, notwithstanding the termination of his employment with
Employer, and will be binding on his heirs, legal representatives, and assigns.
(b) Employee hereby agrees that monetary damages alone will not
adequately compensate Employer in the event of a breach by Employee of his
obligations contained in Section 3(f), 4 or 5. Therefore, Employee agrees that,
in additional to any other remedies available to it, Employer shall be entitled
to interim restraints and permanent injunctive relief for the enforcement of the
provisions of Section 3(f), 4 or 5, and to an accounting and payment over of all
amounts received by Employee as a result of his breach of his obligations under
Section 3(f), 4 or 5.
(c) It is the intention of the parties hereto that the provisions of
Sections 3(f), 4 and 5 be construed and interpreted
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so as to afford the full measure of protection provided for therein. Except as
otherwise expressly set forth herein, no claim or cause of action that Employee
may have against Employer, whether predicted on his employment relationship with
Employer or otherwise, will constitute a defense to the enforcement by Employer
of Employees' agreements set forth in Section 3(f), 4 and 5.
7. TERM AND TERMINATION.
(a) the initial term of this Agreement shall commence on the date
hereof and shall terminate on December 21, 1999. Thereafter, the term of this
Agreement shall automatically renew for additional terms of one (1) year each,
unless this Agreement is sooner terminated under Section 7 (b) or upon written
notice given by either party to the other not less than ninety (90) days prior
to the expiration of the initial or any subsequent term. In addition, this
Agreement shall terminate automatically in the event of the death of Employee.
(b) Employer shall have the right to terminate this Agreement
immediately upon giving written notice to Employee upon the occurrence of any of
the following events:
(i) Due to physical or mental impairment, Employee is unable to
perform substantially all of his duties and services hereunder for any period of
ninety (90) consecutive days or for shorter periods aggregating more than one
hundred twenty (120) days during any twelve (12) month period.
(ii) Employee breaches the provisions of Section 4 or 5 of this
Agreement.
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(iii) Employee breaches any material provision of this
Agreement, other than Section 4 or 5, and such breach is not remedied within
fifteen (15) days after written notice thereof is given to employee by
Employer.
(iv) Employee engages in willful misconduct that demonstrably
adversely affects the operation reputation of Employer, or Employee willfully
fail or refuses to perform substantially all of the duties provided for herein.
(c) In the event of the termination of this agreement in
accordance with the foregoing provisions, Employer shall upon such termination
be released from all further obligations to Employee hereunder, except that it
shall be liable to Employee (i) for such salary under Section 2(a) as shall have
been due and unpaid prior thereto, (ii) for the performance of its obligations
under Section 3(f) and, (iii) in addition, if this Agreement terminated due to
Employee's death or disability, for such death or disability benefits as
Employee may be entitled to receive hereunder.
(d) Employee shall have the right to terminate this Agreement
immediately upon giving written notice to Employer upon the occurrence of any of
the following events:
(i) Employer breaches any material provision of this
Agreement and such breach is not remedied within fifteen (15) days after written
notice thereof is given to Employer by Employee.
(ii) Employer, acting willfully and in bad faith, makes
material and adverse changes to Employee's working conditions and
responsibilities for the purpose of inducing Employee to
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terminate his employment with Employer.
8. MISCELLANEOUS.
(a) All notices required or permitted to be given hereunder shall be
in writing and shall be duly given if delivered to the other party personally,
or sent to the other party by certified mail (return receipt requested),
addressed to the other party at the address first set forth above or to such
other address as any party may designate by a similar notice, and deposited in
the U.S. mail, and shall be deemed to have been given s of the date so
personally delivered or mailed, or, if given by any other means, at the time
delivered.
(b) This Agreement shall be binding upon and enure to the benefit of
the parties hereto, the executors, administrators and legal representatives of
Employee and the successors and assigns of Employer. the provisions of this
Agreement shall not be construed as conferring and are not intended to confer
any rights on any other persons. Neither this Agreement nor any rights or
obligations hereunder may be assigned or delegated by Employee.
(c) In the event that any provision of this Agreement shall be
determined in any jurisdiction to be unenforceable, such determination shall not
be deemed to affect the enforceability of any other provision of this Agreement.
the parties agree that any court making such a determination is hereby requested
and empowered to modify such unenforceable provision and to substitute therefor
such limitation or provision of maximum scope as the court then deems reasonable
and judicially enforceable, and the parties
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further agree that such substitute provision shall be enforceable in said
jurisdiction as if set forth initially in this Agreement. Any such substitute
provision shall be applicable only in the jurisdiction in which the original
provision was determined to be unenforceable.
(d) this Agreement constitutes the entire agreement and understanding
of the parties relating to the subject matter hereof, and supersedes and cancels
all prior agreements relation thereto. this Agreement may not be modified or
amended except by a writing signed by the party sought to be charged therewith.
No waiver by any party of any of his or its rights or remedies on any one
occasion shall bar such party from exercising any of his or its rights or
remedies on any subsequent occasion, and no such waiver shall be binding unless
make in writing and signed by the party making the waiver.
(e) This Agreement shall be governed by , and construed and enforced
in accordance with, the laws of the State of New Jersey, but without giving
effect to any New Jersey choice of law provisions that might otherwise make the
law of a different jurisdiction control or apply.
(f) EMPLOYEE HEREBY ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT IN
ITS ENTIRETY, AND FULLY UNDERSTANDS ALL OF THE
BALANCE OF PAGE INTENTIONALLY LEFT BLANK
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PROVISIONS CONTAINED HEREIN. EMPLOYEE FURTHER ACKNOWLEDGES THAT HE HAS HAD
SUFFICIENT TIME TO REVIEW THIS AGREEMENT, AND IS SIGNING IT WITH FULL KNOWLEDGE
OF THE CONSEQUENCES OF THE RESTRICTIONS CONTAINED IN SECTIONS 4 AND 5.
IN WITNESS WHEREOF, the parties, intending to be legally bound hereby, have
duly executed this Agreement as of the date first above written.
WITNESS: DIPLOMAT AMBASSADOR, INC.
By: /s/ R. Slucker
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/s/ Kenneth Kitnick
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KENNETH KITNICK
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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
AGREEMENT, made as of the 27th day of February, 1997, by and between
DIPLOMAT AMBASSADOR, INC., a Delaware corporation with offices at 1010 Arch
Street, Philadelphia, Pennsylvania 19107 ("Employer"), and EDWARD KAUZ, an
individual residing at 21 Wigwam Road, Locust, New Jersey 07760 ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee on the terms and conditions
set forth herein in its optical business, which business includes, but is not
limited to, the design, manufacture, importing, and sale of eyewear; and
WHEREAS, Employee desires to accept such employment by Employer;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereby agree as follows:
1. Employment.
(a) Employer hereby agrees to employ Employee as its Vice Chairman,
and Employee hereby accepts such employment upon the terms and conditions
hereinafter set forth. Employer shall elect Employee as a member of its Board of
Directors (the "Board") during the term of this Agreement, provided he is
willing and able to serve in such capacity.
(b) Employee hereby undertakes to perform all the duties and
obligations assumed by him hereunder and such other duties, consistent with his
position as an executive of Employer, as
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Employer may from time to time reasonably require, and represents that he is
free to enter into and perform this Agreement and that he will not thereby be in
violation of any agreement or obligation to any other person or entity. In
performing his duties hereunder, Employee shall at all times be subject to the
supervision of more senior officers of Employer and to the authority and control
of the Board of Directors of Employer.
2. Term.
(a) Employee's employment hereunder shall commence on the date
hereof and shall terminate on the fifth (5th) anniversary of the date hereof,
unless sooner terminated by the death of Employee or in accordance with the
other provisions of this Agreement.
(b) Employer shall have the right to terminate this Agreement
immediately upon giving written notice to Employee only upon the occurrence of
any of the following events:
(i) Due to physical or mental impairment, Employee is unable
to perform substantially all of his duties and services hereunder for any period
of one hundred eighty (180) consecutive days or for shorter periods aggregating
more than one hundred eighty (180) days during any twelve (12) month period.
(ii) Employee breaches the provisions of Section 7 or 8 of
this Agreement.
(iii) Employee breaches any material provision of this
Agreement, other than Section 7 or 8, and such breach is not remedied within
thirty (30) days after written notice thereof is
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given to Employee by Employer.
(iv) Employee engages in willful misconduct that tends to
materially adversely affect the operation or reputation of Employer.
(v) Employee willfully fails or refuses to perform
substantially all of the duties provided for herein and fails to cure such
conduct within seven (7) days after written notice thereof is given to Employee
by Employer.
(c) In the event of the termination of this Agreement in accordance
with the foregoing provisions, Employer shall upon such termination be released
from all further obligations to Employee hereunder, including without limitation
Employer's obligation to make payments under Section 8, except that (i) Employer
shall be liable to Employee for such salary under Section 4 as shall have been
due and unpaid prior thereto, and (ii) Employer shall continue to be liable for
the payments required under Section 8 if this Agreement terminates as a result
of the death of Employee or if Employer terminates this Agreement under Section
2(b)(i).
3. Duties of Employee.
(a) Employee shall be an executive of Employer and shall perform
such duties, consistent with his position as an executive of Employer, as the
Board or more senior executives of Employer shall from time to time direct,
including but not limited to providing services in the area of sales, marketing,
and customer relations; providing advice with respect to designs and new lines;
providing introductions to potential merger and acquisition
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candidates; assisting in the development of an international sales force;
providing advice and assistance regarding mergers and acquisitions and
transition management upon consummation of any such transaction; and providing
advice and assistance regarding inventory control.
(b) Employee will be based at Employer's main offices in
Pennsylvania. Notwithstanding the foregoing, however, Employee's employment may
involve extensive travel in circumstances where Employee will not be able to
travel home over the weekend, but Employee shall not be required to travel for
more than one-half (1/2) of his total working days without his consent.
(c) Employee shall devote his full business time, energies,
attention, and best efforts to the performance of his duties and services
hereunder. During the term hereof, Employee shall not, without the prior written
consent of Employer, directly or indirectly engage in any other business
activity, whether or not pursued for profit or other pecuniary advantage.
Nevertheless, Employee may (i) invest his assets in securities of any business
entity whose securities are listed on any national securities exchange or
NASDAQ, so long as such activity does not interfere with the performance of his
duties as a full-time employee of the Company; (ii) spend a reasonable amount of
time disposing of his business in Canada and winding down his business in the
United States; and (iii) spend a reasonable amount of time disposing of or
leasing his real property located in Cranford, New Jersey.
4. Compensation. During the period Employee is employed
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hereunder, Employer shall pay to Employee for all of his duties, obligations,
and services hereunder (other than his obligations under Section 8), a salary at
an annual rate of One Hundred Thousand ($100,000.00) Dollars, which salary shall
be payable at the same interval as other executive employees of Employer are
paid.
5. Benefits. During the period that Employee is employed hereunder,
Employer shall provide the following benefits:
(a) Employee shall be entitled to paid vacations in accordance with
Employer's policies for executives with respect thereto, as established by the
Board from time to time.
(b) Employee shall be entitled to reimbursement, upon his submission
of such expense accounts and supporting documents as are reasonably required by
Employer, for all reasonable and necessary business expenses incurred by
Employee as part of and in connection with the performance of his duties
specified herein. Employer shall use its reasonable efforts to make
reimbursement of expenses on a monthly basis. Notwithstanding the foregoing,
however, a reasonable maximum amount of reimbursable expenses, and policies
regarding reimbursable expenses, may from time to time be fixed in advance by
the Board. Employee has been advised that current Board policies provide that
reimbursement will not be made for the cost of first class travel.
(c) Employer shall provide Employee (and his spouse and children
where applicable) with medical benefits as in effect on the date of this
Agreement, or as modified from time to time by
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Employer at its discretion, which Employer provides to its nonunion employees
generally. Employer shall reimburse Employee for all COBRA expenses with his
existing medical plan until he qualifies for inclusion in Employer's medical
plan.
(d) Employee shall be entitled to participate in such retirement and
other benefit plans as Employer may from time to time provide for its executive
employees, subject to the terms and provisions of such plans as in effect from
time to time.
(e) Employer shall pay or reimburse Employee, on a monthly basis,
for one-half (1/2) of the cost of (i) the monthly lease payments due under the
lease for the Mercedes Benz automobile currently used by Employee, plus (ii) the
actual cost incurred by Employee to insure such automobile. The total monthly
lease payments are $1,171.00, and total annual insurance payments are currently
$2,160.00.
(f) Employee shall be entitled to paid sick days in accordance
Employer's policies in effect for executive employees from time to time, and
disability benefits under company group plans in effect from time to time.
6. Phantom Stock.
(a) For purposes of this Section 6, the term "Sale of Diplomat"
shall mean one of the following transactions, but only if the parties who owned
the outstanding common stock of Employer prior to the consummation of such
transaction own less than 51% of the outstanding voting stock of the entity that
owns Employer's assets immediately after the consummation of such transaction:
(i)
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the sale of the outstanding capital stock of Employer, (ii) the sale of
substantially all of the assets of Employer, or (iii) any transaction or series
of transactions which has a similar effect.
(b) In the event of the Sale of Diplomat, as that term is defined in
Section 6(a), Employer shall pay or cause to be paid to Employee a portion of
the proceeds of the Sale of Diplomat, or the cash value thereof, as if Employee
owned 5% shares of the common stock of Employer issued and outstanding on the
date of this Agreement from the date of this Agreement through the date of the
closing of such transaction, adjusted as hereinafter provided.
(c) For the purposes of this Section 6, the term "going public
transaction" shall mean either:
(i) A registration statement is filed under the Securities Act
of 1933 (the "1933 Act") for Employer's common stock, and the stock registered
under such registration statement is subsequently offered for sale to the
public, or
(ii) A substantial amount of capital is raised for Employer by
means of a sale of its capital stock pursuant to a consummated transaction that
is exempt from the registration requirements of the 1933 Act, and Rudy Slucker
consummates the sale of all or part of his common stock of Employer as part of
such transaction.
(d) In the event of a going public transaction, Employee shall have
the right to receive from Employer, immediately prior to the offering of
Employer's stock to the public in the event of a going public transaction
described in Section 6(c)(i), and
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immediately after the consummation of such transaction in the event of a going
public transaction described in Section 6(c)(ii), a number of shares of the
common stock of Employer equal to 5% of the number of such shares issued and
outstanding on the date of this Agreement, adjusted as hereinafter set forth. In
the event of a going public transaction described in Section 6(c)(i), Employee
shall have the right to participate in the registration of Employer's stock in
accordance with the provisions of Section 6(i).
(e) The number of shares upon which Employee's rights are based
pursuant to this Section 6 shall be adjusted to reflect stock splits, stock
dividends, recapitalizations, and similar changes in Employer's outstanding
common stock after the date of this Agreement. In addition, in the event of a
transaction of the type described in Section 6(a) that does not result in the
parties who owned the outstanding common stock of Employer prior to the
consummation of such transaction owning less than 51% of the outstanding voting
stock of the entity that owns Employer's assets immediately after the
consummation of such transaction, upon such consummation, Employee's rights
hereunder shall apply to the stock of of the entity that acquires Employer's
assets. Employer agrees that, prior to a going public transaction described in
Section 6(c), Employee's interest in Employer under this Section 6 shall not be
reduced by the issuance of common stock of Employer, or rights to acquire common
stock of Employer, unless the interests in Employer owned by Rudy Slucker, Barry
Budilov, their spouses, their children, any trust created for the benefit of any
of them, or any
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entity controlled by any of them are reduced in the same proportion as a result
of the issuance of such stock or rights.
(f) In the event that Employee terminates his employment with
Employer in breach of this Agreement, or, before or after the expiration of the
term of this Agreement, Employee engages in criminal conduct in the course of
his employment or other relationship with Employer, or engages or engaged in
fraudulent conduct in his dealings with Employer before or after the date of
this Agreement, or breaches his obligations under Section 7 or 8 of this
Agreement, and no stock has been issued to Employee hereunder, Employer shall
have the option to void the rights granted by Employer to Employee under this
Section 6 by written notice to Employee, and such rights shall be forfeited and
canceled as of the date of this Agreement, as if they had never been granted,
immediately upon the giving of such notice by Employer.
(g) In the event that:
(i) Employee's employment with Employer terminates prior to
the end of the term of this Agreement described in Section 2(a), and
(ii) such termination occurs prior to the issuance of stock to
Employee under Section 6(d), and
(iii) Employer does not have the right to exercise, or does
not exercise, the option granted to Employer under Section 6(f), and
(iv) Employer did not terminate Employee's employment in
breach of this Agreement,
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Employee shall sell to Employer, and Employer shall purchase from Employee, the
rights granted by Employer to Employee under this Section 6 for a purchase price
equal to the net book value per share of such rights, which value shall be
determined by reference to Employer's certified financial statements for the
fiscal year preceding the year during which such termination occurs.
(h) Employee's rights under this Section 6 shall be fully vested,
and shall not be subject to any buy-back rights other than those described in
Section 6 (f), upon Employee having remained an employee of Employer for the
full term of this Agreement described in Section 2(a), or upon the termination
of Employee's employment by Employer in breach of this Agreement. In the event
of the termination of this Agreement under Section 2(b)(i) or upon the death
of Employee, Employee's rights under this Section 6 shall be partially vested,
and shall not be subject to any buy-back rights other than those described in
Section 6(f), pro rata in the same proportion that the number of days that
Employee was employed hereunder bears to the number of days in the full
five-year term of this Agreement.
(i) In the event a going public transaction described in Section
6(c) (hereinafter referred to as a "Piggyback Registration"), Employee shall
have the right to include in such Piggyback Registration and in any underwriting
involved therewith, such number of shares of Employer's common stock issued or
to be issued to him under Section 6(d) (the "Section 6 Stock") as Employee may
specify in a written request delivered to Employer
10
<PAGE>
within fifteen (15) days after Employer gives Employee written notice of its
plans for such Piggyback Registration, subject to the limitations and provisions
contained in this Section.
(i) If the Piggyback Registration involves an underwriting,
Employee's rights under this Section 6(i) shall be conditioned on his
participation in such underwriting and the inclusion of his Section 6 Stock in
such underwriting to the extent provided herein. Employee shall enter into an
underwriting agreement in customary and reasonable form with the underwriter or
underwriters selected for such underwriting by Employer in its sole discretion
(collectively, the "Underwriter"), and shall complete, execute, and deliver to
the Underwriter all questionnaires, powers of attorney, indemnities, and other
documents requested by the Underwriter and such documents as may be required by
the underwriting agreement. In addition, if the managing Underwriter informs
Employer that it is their opinion that the total number of shares of common
stock of Employer intended to be included in such offering should be reduced,
then the number of shares of Section 6 Stock that Employee has requested to
include in such offering shall be reduced pro rata in the same proportion that
the number of shares that Rudy Slucker intended to include in such offering are
reduced.
(ii) Employer shall not be required to maintain the
effectiveness of any registration statement with respect to a Piggyback
Registration in which Employee's common stock of Employer is included hereunder
beyond the earlier of one hundred twenty
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<PAGE>
(120) days after the effective date thereof or the consummation of the
distribution by Employer of the common stock included in such registration
statement.
(iii) Employee agrees that, if requested by the Underwriter in
connection with a Piggyback Registration, he shall not effect any public sale or
distribution of any common stock of Employer, including a sale pursuant to Rule
144 under the 1933 Act, without the consent of the Underwriter, during such time
period as the Underwriter may reasonably request.
(iv) In connection with a registration of the Section 6 Stock
hereunder, and as a condition to the inclusion of the Section 6 Stock in such
registration, Employee shall furnish to Employer and the Underwriter such
information as Employer or the Underwriter may from time to time reasonably
request, and Employer may exclude the Section 6 Stock from such registration if
Employee fails to furnish such information within a reasonable time after such
request is made. Employee agrees to indemnify and hold Employer, its officers,
directors, agents, and employees harmless from and against any and all loss,
cost, liability, or expense, including reasonable attorneys' fees and expenses,
arising out of or based upon any information so furnished by Employee to
Employer or the Underwriter in connection with the registration of Employee's
common stock of Employer hereunder.
(j) The provisions of this Section 6 shall survive the expiration or
termination of this Agreement.
7. Confidentiality of Information and Duty of Nondisclosure.
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(a) Employee acknowledges and agrees that his employment by Employer
will involve his understanding of and access to certain trade secrets and
confidential information pertaining to Employer's business and affairs.
(b) Accordingly, Employee agrees that, at all times during the term
of this Agreement and thereafter, he will not, directly or indirectly, without
the express authority of Employer or the Board, disclose to or use for the
benefit of any person or entity, or himself, any files, trade secrets,
proprietary information, or other confidential information concerning Employer's
business and affairs, including, without limitation, information pertaining to
Employer's past, present, or prospective clients, customers, operations,
methods, earnings, finances, or other activities. Further, Employee agrees that
he will not, directly or indirectly, remove or retain, without the express prior
written consent of Employer or the Board, any figures, calculations, letters,
papers, records, documents, instruments, drawings, designs, programs, or any
copies thereof or any information or instruments derived therefrom, or any other
similar documents or information of any type or description, however such
information might be obtained or recorded and on whatever medium such
information may be contained, arising out of or in any way relating to
Employer's business or affairs. Employee acknowledges that all of the foregoing
constitutes proprietary information, which is the exclusive property of
Employer.
(c) Notwithstanding the foregoing, Employee may disclose
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Employer's proprietary information if and to the extent that he is ordered to do
so by a court having jurisdiction over Employee; provided that Employee gives
immediate notice of such order to Employer in order to give Employer the
opportunity to intervene in the applicable proceeding to prevent such
disclosure.
(d) From and after the termination date of Employee's employment
with Employer, the restrictions set forth in this Section 7 shall not apply to
Employer's proprietary information that is then in the public domain, but only
if Employee was not responsible, directly or indirectly, for permitting such
information to enter the public domain without the consent of Employer and has
no knowledge that such information entered the public domain without the consent
of Employer.
8. Covenant Not to Compete.
(a) For purposes of this Agreement, the following terms shall have
the defined meanings set forth below:
(i) The term "Restrictive Covenant Term" shall mean the longer
of: (A) so long as Employee is employed by Employer in any capacity whatsoever,
and for a period of one (1) year following the termination of his employment
with Employer for any reason whatsoever, or (B) the six (6) year period
commencing on the date of this Agreement.
(ii) The term "Customer" shall mean any person or entity to
which Employer has sold goods or provided services during the two (2) year
period prior to the date that the Employee's employment with Employer
terminates.
14
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(b) Employee covenants and agrees that, during the Restrictive
Covenant Term, Employee shall not, directly or indirectly, individually or in
concert with others or as stockholder, director, officer, partner, member,
principal, agent, employer, employee, or consultant, or in any other individual
or representative capacity:
(i) Call on, solicit, serve, or cater to, or attempt to call
on, solicit, serve, or cater to, any Customer for the purpose of rendering any
service or selling any product competitive with, or usable for substantially the
same purpose as, any service or product provided, manufactured or sold or in the
process of development by Employer; or
(ii) Engage in the business of Employer and/or in the sale or
in the marketing or sale of any service or product competitive with, or usable
for substantially the same purpose as, any service or product provided,
manufactured or sold or in the process of development by Employer.
(c) Employee will not be bound by the provisions of this Section 8
if Employer (i) terminates Employee's employment in breach of this Agreement, or
(ii) does not renew this Employment Agreement after it expires in circumstances
where Employer would not have had the right to terminate this Agreement based on
Employee's breach prior to its expiration, or (iii) fails to cure a breach in
the payment of amounts due and payable under this Section 8 within thirty (30)
days after receipt of written notice of breach from Employee.
15
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(d) Employee shall not be deemed to be in breach of his
obligations under this Section 8 as a result of activities relating to the sale
or liquidation of his eyewear business in Canada.
(e) In consideration of the restrictive covenant contained in this
Section 8, Employer shall pay to Employee the sum of Five Hundred Thousand
($500,000.00) Dollars, subject to the limitations hereinafter set forth.
(i) The sum required to be paid under Section 8(e) shall be
payable in equal installments, at the same interval as the salaries of executive
employees of Employer are paid, over a term of five (5) years, commencing one
month after the commencement of the term of this Agreement.
(ii) In the event that Employee dies prior to the expiration
of the Restrictive Covenant Term, except as otherwise expressly provided in
Sections 2(c) and 8(e)(iii) of this Agreement, the remaining installments of
the sum required to be paid under Section 8(e) shall be paid to Employee's
estate, or in accordance with his will, or, in the absence of a will, to his
heirs at law.
(iii) Notwithstanding anything to the contrary set forth
above, the unpaid balance of the sum payable under Section 8(e) shall be
forfeited by Employee in the event that his employment with Employer is
terminated for any of the reasons specified in Section 2(b)(ii), 2(b)(iii),
or 2(b)(iv); provided, that nothing set forth in this Agreement shall be deemed
to constitute a waiver by Employer of any right or remedy it may have
16
<PAGE>
against Employee based on the events that served as the basis for such
termination; and further provided, that the forfeiture of amounts payable under
Section 8(e) pursuant to the provisions of this Section shall not result in the
release of Employee from his obligations set forth in this Section 8.
9. Remedies for Breach of Nondisclosure or Noncompete Provisions.
(a) Employee hereby acknowledges that his obligations under Sections
7 and 8 will continue in effect, notwithstanding the termination of his
employment with Employer, and will be binding on his heirs, legal
representatives, and assigns.
(b) Employee hereby agrees that monetary damages alone will not
adequately compensate Employer in the event of a breach by Employee of his
obligations contained in Section 7 or 8. Therefore, Employee agrees that, in
addition to any other remedies available to it, Employer shall be entitled to
interim restraints and permanent injunctive relief for the enforcement of the
provisions of Section 7 or 8, and to an accounting and payment over of all
amounts received by Employee as a result of his breach of his obligations under
Section 7 or 8.
(c) It is the intention of the parties hereto that the provisions of
Sections 7 and 8 be construed and interpreted so as to afford the full measure
of protection provided for therein. Each paragraph of Sections 7 and 8 will be
construed as an agreement independent of any other provision of this Agreement.
No claim or cause of action that Employee may have against Employer,
17
<PAGE>
whether predicted on his employment relationship with Employer or otherwise,
will constitute a defense to the enforcement by Employer of Employee's
agreements set forth in Sections 7 and 8.
10. Indemnification.
(a) Except as provided in Section l0(c), whenever Employee is a
party, or is threatened to be made a party, to any pending, completed, or
impending action, suit, or proceeding of any kind, whether civil, criminal,
administrative, arbitrative, or investigative, by reason of serving or having
served as an officer and/or employee of Employer, subject to the limitations set
forth in this Section 10, Employee shall be indemnified by Employer, to the
fullest extent permitted by law, against:
(i) in any action, suit, or proceeding other than an action by
or in the right of Employer, all expenses (including reasonable attorneys' fees
and expenses), judgments, fines, and amounts paid in settlement, actually and
reasonably incurred by Employee, resulting from such action, suit, or
proceeding, or
(ii) in any action or suit by or in the right of Employer, all
expenses (including reasonable attorneys' fees and expenses) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit, resulting from such action or suit.
(b) If permitted by law, Employer may, but shall not be required to,
purchase insurance on behalf of Employee against liability asserted against or
incurred by Employee in his capacity as an officer and/or employee of Employer,
or arising from
18
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Employee's status as an officer and/or employee of Employer, whether or not
Employer would be required to indemnify him against the same liability under the
provisions of this Section 10(a).
(c) In any claim for indemnification under this Section 10, (i)
Employer shall have the right to settle any claim without the prior consent of
Employee, provided that Employee receives a release from such claim, (ii)
Employee may not settle or compromise any such claim without the prior written
consent of Employer, and (iii) Employer may defend such claim with counsel of
its own choosing (and in such event, Employer shall not be required to pay the
expenses of counsel to Employee).
(d) The indemnification rights set forth in this Section 10 shall
not apply to claims based on fraud, gross negligence, or willful or intentional
misconduct, or to any act of Employee (or any failure of Employee to act) that
was not taken in good faith and within the scope of Employee's responsibilities.
The rights granted in this Section 10 shall be void to the extent that they
require indemnification under circumstances where such indemnification is not
permitted under the law of the state where Employer is incorporated. Nothing set
forth in this Section 10 shall preclude Employer from recovery for any loss or
damage otherwise covered under any insurance policy or fidelity bond.
(e) Nothing herein shall be deemed to prohibit to limit Employer's
right to pay the costs (including reasonable attorneys' fees and expenses)
incurred by Employee to defend Employee against any civil, criminal,
administrative, or investigative action, suit,
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<PAGE>
or proceeding in advance of the final disposition thereof, upon receipt of an
undertaking by or on behalf of Employee to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by Employer
in accordance with this Section 10 and as authorized by applicable law.
(f) Employee shall be entitled to recover from Employer all legal
costs or expenses, including reasonable attorneys' fees and expenses, incurred
by Employee to enforce his rights under this Section 10, or to collect any sums
due from Employer under this Section 10.
11. Escrow of Disputed Salary and Noncompete Payments. In the event that
Employer terminates this Agreement under Section 2(b), and Employee disputes
Employer's right to do so, or in the event that Employer ceases making payments
to Employee under Section 8 and Employee disputes Employer's right to do so,
Employer shall pay Employee's salary under Section 4, and/or the payments
described in Section 8, as if this Agreement had not been terminated and/or as
if such payments were required to be paid, into an interest bearing escrow
account until such dispute is resolved. The interest earned on such account
shall be paid over the party who ultimately receives the amounts paid into
escrow.
12. Notices. For the purposes of this Agreement, notices shall be in
writing and shall be deemed to have been duly given when delivered or mailed by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed as follows:
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If to Employee:
21 Wigwam Road
Locust, New Jersey 07760
with a copy to:
Stephen E. Lampf, Esq.
Lampf, Lipkind, Prupis, Petigrow & LaBue
80 Main Street
West Orange, New Jersey 07052
If to Employer:
Diplomat Ambassador, Inc.
1010 Arch Street, 3rd Floor
Philadelphia, Pennsylvania 19107
Attention: Mr. Barry Budilov
with a copy to:
Jay J. Rice, Esq.
Nagel Rice & Dreifuss
301 South Livingston Avenue
Livingston, New Jersey 07039
or at such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Assignment; Binding Agreement. The duties and obligations of Employee
hereunder may not be assigned or delegated by him. Employer may assign its
rights hereunder to any affiliated or successor corporation or other entity,
including a successor through the purchase of substantially all of its assets.
This Agreement and all rights hereunder shall be binding upon, inure to the
benefit of, and be enforceable by (a) Employee and his personal or legal
representatives, executors, administrators, distributees, devisees, and
legatees, and (b) Employer and its successors and assigns.
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14. Integration. This Agreement supersedes all prior agreements,
contracts, understandings, negotiations, and other arrangements between the
parties, including without limitation any employment contracts, agreements, or
understandings in effect as of the date hereof.
15. Miscellaneous.
(a) No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing signed by Employee and an authorized officer of Employer.
(b) No waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance by the other party hereto with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of any similar or dissimilar provisions or conditions
at the same or at any prior to subsequent time.
(c) No representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement.
(d) Except as otherwise expressly set forth above with respect to
indemnification, the validity, interpretation, construction, and performance of
this Agreement shall be governed by the laws of the State of New Jersey, but
without giving effect to any choice of law provision that might otherwise make
the law of a different jurisdiction control or apply.
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16. No Duty to Mitigate. In the event of a breach of this Agreement by
Employer resulting in an improper termination of Employee's employment
hereunder, it is expressly understood that Employee shall have no duty to
mitigate his damages by seeking other employment.
17. Amendments. This Agreement may not be amended, modified, or
supplemented at any time whatsoever unless such amendment, modification, or
supplement is reduced to writing and executed by Employee and an authorized
officer of Employer.
18. Separability. The provisions of this Agreement shall be considered to
be separable and independent of each other. In the event that any provision of
this Agreement shall be determined in any jurisdiction to be unenforceable, such
determination shall not be deemed to affect the enforceability of any other
provision of this Agreement. The parties agree that any court making such a
determination is hereby requested and empowered to modify such unenforceable
provision and to substitute therefor such limitation or provision of maximum
scope as the court then deems reasonable and judicially enforceable, and the
parties further agree that such substitute provision shall be enforceable in
said jurisdiction as if set forth initially in this Agreement. Any such
substitute provision shall be applicable only in the jurisdiction in which the
original provision was determined to be unenforceable.
19. Headings. The section headings in this Agreement are for the
convenience of reference only and shall not be deemed to define, limit, or
describe the scope and intent of this Agreement,
23
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or any section or subsection thereof, or to alter or affect the interpretation
of any provision thereof.
20. Arbitration. Any dispute arising out of or relating to this Agreement
shall be resolved in an arbitration proceeding in Essex County, New Jersey by an
arbitrator who is a retired judge selected by the agreement of Employer and
Employee, or, if Employer and Employee cannot agree on an arbitrator, he shall
be a retired judge selected by the assignment judge of Essex County, New Jersey.
The arbitrator shall be required to state the reasons for his decision, which
decision shall be final and binding on Employer and Employee, and may be entered
as a judgment in any court of appropriate subject matter jurisdiction.
IN WITNESS WHEREOF, this Agreement has been executed by and on behalf of
the parties hereto as of the day and year first above written.
DIPLOMAT AMBASSADOR, INC.
BY: /s/ Rudy Slucker
------------------------------
/s/ Edward Kauz
---------------------------------
EDWARD KAUZ
24
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EXHIBIT 10.9
Diplomat Ambassador, Inc.
1010 Arch Street, 3rd Floor
Philadelphia, Pennsylvania 19107
February 27, 1997
Mr. Edward Kauz
21 Wigwam Road
Locust, New Jersey 07760
Dear Mr. Kauz:
Supplementing the Employment Agreement between us dated February 27, 1997
(the "Employment Agreement"), this will confirm that we have agreed as follows:
1. If, prior to the closing of the acquisition by Diplomat Ambassador,
Inc. ("Diplomat") of the assets of Renaissance Eyewear, Inc. ("Renaissance"),
you, or any other executive of Renaissance actually knew or obtained knowledge
of any return, credit, or other adjustment that may adversely affect the
receivables of Renaissance, which is not disclosed on, or arose after the date
of, the final balance sheet of Renaissance dated January 31, 1997, and failed to
advise Rudy Slucker or Barry Budilov, in writing prior to the closing of such
acquisition, of its existence, the amount or cost of such return, credit, or
other adjustment shall be deducted, on a dollar-for-dollar basis, from the
compensation and non-compete payments that otherwise would be payable to you
under the Employment Agreement, but only to the extent that such amount or cost
exceeds $100,000.00. Annexed hereto as Schedule A is a list of such returns,
credits, and other adjustments known to you or other executives of Renaissance
as of the date of this letter.
2. You will immediately provide information and make arrangements, in
cooperation with employees of Diplomat Ambassador, Inc. ("Diplomat"), so that
Diplomat, at its option, may become the owner of a $1 million term life
insurance policy on your life currently owned by Renaissance before such policy
is canceled for nonpayment of premiums. If Diplomat is the owner of that policy
at the time of your death, it will apply the proceeds of the policy to the
payment of the unpaid balance, if any, of the $500,000.00 payable to you in
consideration of the non-competition covenants of Section 8 of the Agreement,
but any excess of policy proceeds over such unpaid balance will belong to
Diplomat. If Diplomat owns the policy at the time of your death, and the
proceeds of the policy are paid directly to your estate or your designees, such
payment shall be deemed to reduce, on a dollar-for-dollar basis, any
then-remaining obligation of Diplomat to make payments with respect to such
non-competition covenants. Notwithstanding anything to the contrary set forth in
this letter, however, Diplomat shall not be required to become the owner of this
life insurance policy, and will have the right to stop paying the premiums on
the policy and
<PAGE>
Mr. Edward Kauz
February 27, 1997
Page 2
to allow the policy to be terminated if Diplomat does become the owner of the
policy.
3. If, during the term of your employment by Diplomat, you introduce
Diplomat to a company as a potential merger or acquisition partner, and Diplomat
enters into a final agreement for the purchase of substantially all of the
assets of, or for a merger with, or to otherwise acquire, the business of that
company within six (6) months after you make the introduction, you will be
entitled to receive a commission, as follows:
(a) If Diplomat registers its stock under the Securities Act of 1933
and offers such stock for sale to the public under such registration statement
("goes public") after the closing of the transaction with respect to which you
earn a commission (the "Transaction") you will be entitled to receive, at the
time Diplomat goes public, options to purchase Diplomat common stock worth an
amount equal to 1% of the amount of net consideration paid by Diplomat in
connection with the Transaction, at a purchase price equal to the opening price
for such stock on the date Diplomat goes public.
(b) If Diplomat goes public before the closing of the Transaction,
you will be entitled to receive, upon the closing of the Transaction, options to
purchase Diplomat common stock worth an amount equal to 1% of the amount of net
consideration paid by Diplomat in connection with the Transaction, at a purchase
price equal to the closing price for such stock on the date of the closing.
(c) For purposes of this Agreement, the net consideration paid by
Diplomat in connection with a Transaction shall be deemed to include only the
net amount or net value paid in consideration of assets (if assets purchased) or
securities (in the event of a merger or purchase of a controlling stock
interest), and shall not be deemed to include separate payments made in
connection with employment, consulting, or similar arrangements with the
principals or other employees of the acquired business.
(d) By way of example, if, after Diplomat goes public, (i) you
introduce Diplomat to a company, (ii) Diplomat purchases its assets for
$1,000,000.00 under a final agreement executed within six (6) months after you
make the introduction, and (iii) Diplomat's common stock closes at $20.00 per
share on the date of the closing, you will be entitled to receive a commission
of options to purchase 500 shares of Diplomat common stock at a purchase price
of $20.00 per share.
2
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Mr. Edward Kauz
February 27, 1997
Page 3
(e) Notwithstanding anything to the contrary set forth above, your
right to receive unpaid commissions will terminate at the time of the
termination of your employment if (i) Diplomat terminates your employment for
any of the reasons specified in Section 2(b)(ii), 2(b)(iii), or 2(b)(iv)
of the Agreement prior to the expiration of the five year term of the Agreement,
or (ii) you terminate your employment in breach of the Agreement.
4. Under our agreement, the inventory (the "Canadian Inventory") of your
Canadian company, Lunette Renaissance Eyewear, Inc. ("Renaissance Canada")
belongs to Diplomat as of the time that Diplomat acquires Renaissance's assets
(the "Closing") . Annexed hereto as Schedule B is a list of the Canadian
Inventory and its value as of February ___, 1997.
(a) If and to the extent that the Canadian Inventory is sold after
the time of the Closing, proceeds from such sale in an amount equal to the value
of the inventory sold as set forth on Schedule B hereto shall belong to, and
shall be immediately paid over to Diplomat, and the balance of such proceeds
shall belong to Renaissance Canada.
(b) Diplomat agrees that you may, and you agree to, attempt to sell
Renaissance Canada, or all of its assets, promptly after the date of this
Agreement, as a going concern. If you sell Renaissance Canada or its assets as a
going concern, proceeds from that sale in an amount equal to the value of
Canadian Inventory as set forth on Schedule B hereto, less amounts previously
paid to Diplomat with respect to such inventory, shall belong to, and shall be
immediately paid over to, Diplomat, and the balance of such proceeds shall
belong to Renaissance Canada.
Please confirm our agreement by signing this letter where indicated below.
Very truly yours,
DIPLOMAT AMBASSADOR, INC.
BY
----------------------------
Confirmed and agreed to.
/s/ Edward Kauz
- ------------------------
Edward Kauz
3
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EXHIBIT 10.10
CONSULTING AGREEMENT
AGREEMENT, made as of the 26th day of June, 1996, by and between DIPLOMAT
AMBASSADOR INC., a Delaware corporation with offices at 1010 Arch Street,
Philadelphia, Pennsylvania 19107 ("Diplomat"), and JAY KITNICK, an individual
residing at 1039 Old Ford Road, Huntingdon, Pennsylvania 19006 ("Consultant").
W I T N E S S E T H:
WHEREAS, Diplomat is engaged in the optical business, including but not
limited to the design, manufacture, importing, and sale of eyewear (the
"Business"); and
WHEREAS, concurrently with the execution and delivery of this Agreement,
Diplomat is purchasing substantially all of the assets of Windsor Optical, Inc.
("Windsor"), which also is engaged in the Business; and
WHEREAS, Consultant is an executive officer and shareholder of Windsor, is
intimately familiar with Windsor's day to day operations, and is acquainted with
Windsor's customers; and
WHEREAS, in connection with the purchase by Diplomat of Windsor's assets,
Consultant and Diplomat have agreed that Consultant shall become a consultant
to Diplomat on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereby agree as follows:
1. Engagement.
(a) Diplomat hereby engages Consultant as a consultant to
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Diplomat, to render his services to Diplomat during the Term, as hereinafter
defined. Consultant hereby accepts such engagement, and undertakes to perform
all the duties and obligations assumed by him hereunder.
(b) Consultant shall devote such time, energies, and attention as
may be necessary for the performance of his duties and services hereunder.
2. Duties and Term. During the three (3) year period commencing on the
date of this Agreement (the "Term"), Consultant shall provide such advice with
respect to the operation and management of the business purchased by Diplomat
from Windsor, and such information as may be available to Consultant regarding
Windsor's customers and products, as Diplomat may from time to time request, at
such times and in such manner, including over the telephone, as may be
convenient to Consultant.
2. Compensation. Diplomat shall pay to Consultant, for all of his duties,
obligations, and services hereunder, a total consulting fee of $250,000.00,
payable in thirty-six (36) monthly installments of $6,944.44 each commencing
June 20, 2004. Subject to the provisions of Section 6(b) of this Agreement, the
consulting fee payable hereunder is deemed fully earned immediately upon the
execution and delivery of this Agreement. Diplomat shall have the right at its
option to withhold from any amounts payable under this Agreement such Federal,
State, and other income taxes and other items as may be required to be withheld
from persons who are employees of Diplomat under applicable law. In addition,
Diplomat
2
<PAGE>
shall have the right at any time prior to the payment of all consulting fees due
and payable hereunder to pre-pay same based on its then-current value, which
shall be calculated assuming interest at the the prime rate of interest, as set
forth in the Wall Street Journal, in effect at the time of prepayment.
3. Trade Secrets and Documents.
(a) For purposes of this Agreement, the term "Trade Secrets" shall
mean the shipping information of Diplomat and Windsor, including but not limited
to freight rates; the methods and processes of assembling and distributing their
products, including those in the process of development; Diplomat's and
Windsor's pricing, customer lists and credit terms and counter-trade
arrangements, including those in the process of completion; Diplomat's and
Windsor's methods and results of the research; the names of Diplomat's and
Windsor's customers and the products used by each such customer; and any other
confidential information or data relating to Diplomat's or Windsor's business
which is not publicly known and does not become publicly known without a breach
of this or any other confidentiality agreement or obligation to Diplomat.
(b) Consultant agrees that he will not, either during his engagement by
Diplomat hereunder (except pursuant to his engagement hereunder) or at any time
thereafter, impart or disclose any Trade Secrets to any person, firm or
corporation other than Diplomat, or use any Trade Secrets, directly or
indirectly, for his own benefit or for the benefit of any person, firm or
corporation other than
3
<PAGE>
Diplomat.
(c) Consultant agrees that all memoranda, notes, records, reports,
manuals, charts, formulae, specifications, lists and other documents made,
compiled, received, held, or used by Consultant while engaged by Diplomat
hereunder, concerning any phase of Diplomat's business or Trade Secrets,
including without limitation such items stored on computer-readable media, and
all copies thereof, shall be Diplomat's property and shall be delivered by
Consultant to Diplomat on the termination of Consultant's obligation to provide
services hereunder or at an earlier time on the request of Diplomat.
4. Noncompetition.
(a) For purposes of this Agreement, the term "Customer" shall mean
any person or entity to which Windsor sold goods or provided services during the
two (2) year period prior to the date of this Agreement.
(b) Consultant covenants and agrees that, provided that Diplomat is
not in breach of this Agreement, for a period of three (3) years after the date
of this Agreement, he shall not, directly or indirectly, individually or in
concert with others or as stockholder, director, officer, partner, member,
principal, agent, employer, employee, or consultant, or in any other individual
or representative capacity:
(i) Call on, solicit, serve, or cater to, or attempt to call
on, solicit, serve, or cater to, any Customer for the purpose of rendering any
service or selling any product
4
<PAGE>
competitive with, or usable for substantially the same purpose as, any service
or product provided, manufactured or sold or in the process of development by
Windsor as of the date of the closing of the purchase of Windsor's assets by
Diplomat; or
(ii) Engage in the Business.
(c) Consultant agrees that he will not directly or indirectly at any
time solicit or induce other employees of Diplomat to terminate their agreements
or employment with Diplomat.
5. Continuing Effect and Enforcement of Certain Provisions.
(a) Consultant hereby acknowledges that his obligations under
Sections 3 and 4 will continue in effect, notwithstanding the termination of his
engagement by Diplomat, and will be binding on his heirs, legal representatives,
and assigns.
(b) Consultant hereby agrees that monetary damages alone will not
adequately compensate Diplomat in the event of a breach by Consultant of his
obligations contained in Section 3 or 4. Therefore, Consultant agrees that, in
addition to any other remedies available to it, Diplomat shall be entitled to
interim restraints and permanent injunctive relief for the enforcement of the
provisions of Section 3 or 4, and to an accounting and payment over of all
amounts received by Consultant as a result of his breach of his obligations
under Section 3 or 4.
(c) It is the intention of the parties hereto that the provisions of
Sections 3 and 4 be construed and interpreted so as to afford the full measure
of protection provided for therein. Each paragraph of Sections 3 and 4 will be
construed as an
5
<PAGE>
agreement independent of any other provision of this Agreement. Except as
otherwise specifically provided in this Agreement, no claim or cause of action
that Consultant may have against Diplomat, whether predicted on his consulting
relationship with Diplomat or otherwise, will constitute a defense to the
enforcement by Diplomat of Consultant's agreements set forth in Sections 3 and
4.
6. Default.
(a) All consulting fees payable hereunder shall become immediately due and
payable without discount, and Consultant's obligations hereunder shall
terminate, upon the occurrence of any of the following:
(i) Failure of Diplomat to make any payment due hereunder within
five (5) days after it fell due which is not cured within ten (10) days after
written notice of such default is given to Diplomat by (A) certified mail,
return receipt requested, or (B) Federal Express or other overnight courier
which provides a signed receipt for delivery which notice shall be deemed to
have been given on the date actually delivered;
(ii) A default by Diplomat under or breach by Diplomat of the Asset
Purchase Agreement of even date herewith among Windsor, Diplomat, Consultant,
and Kenneth Kitnick (the "Purchase Agreement") or the promissory notes issued
pursuant thereto, which default is not cured after the giving of any required
notice and the expiration of any applicable grace period.
(b) Any defense of Diplomat to the performance of its obligations under
the Purchase Agreement shall constitute a defense
6
<PAGE>
of Diplomat to its obligation to pay consulting fees and otherwise perform its
obligations under this Agreement.
7. Miscellaneous.
(a) All notices required or permitted to be given hereunder shall be
in writing, and shall be duly given if delivered to the other party personally,
or sent to the other party by certified mail (return receipt requested),
addressed to the other party at the address first set forth above or to such
other address as any party may designate by a similar notice, and deposited in
the U.S. mail, and shall be deemed to have been given as of the date so
personally delivered or mailed.
(b) This Agreement shall be binding upon and enure to the benefit of
the parties hereto, the executors, administrators and legal representatives of
Consultant and the successors and assigns of Diplomat. The provisions of this
Agreement shall not be construed as conferring and are not intended to confer
any rights on any other persons. Neither this Agreement nor any rights or
obligations hereunder may be assigned or delegated by Consultant; provided that
Consultant shall have the right to assign payments due and owing under this
Agreement to his spouse or children or to a trust for the benefit of any of
them. In the event of the death of Consultant prior to the payment of the full
$250,000.00 consulting fee provided for herein, the unpaid balance of such
consulting fee shall be paid to his estate.
(c) The provisions of this Agreement shall be considered to be
separable and independent of each other. In the event that
7
<PAGE>
any provision of this Agreement shall be determined in any jurisdiction to be
unenforceable, such determination shall not be deemed to affect the
enforceability of any other provision of this Agreement. The parties agree that
any court making such a determination is hereby requested and empowered to
modify such unenforceable provision and to substitute therefor such limitation
or provision of maximum scope as the court then deems reasonable and judicially
enforceable, and the parties further agree that such substitute provision shall
be enforceable in said jurisdiction as if set forth initially in this Agreement.
Any such substitute provision shall be applicable only in the jurisdiction in
which the original provision was determined to be unenforceable.
(d) This Agreement constitutes the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes and cancels all prior agreements relating thereto. This Agreement may
not be modified or amended except by a writing signed by the party sought to be
charged therewith. No waiver by any party of any of his or its rights or
remedies on any one occasion shall bar such party from exercising any of his or
its rights or remedies on any subsequent occasion, and no such waiver shall be
binding unless made in writing and signed by the party making the waiver.
(e) This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of New Jersey, but without giving
effect to any New Jersey choice of law
8
<PAGE>
provisions that might otherwise make the law of a different jurisdiction control
or apply.
(f) CONSULTANT HEREBY ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT
IN ITS ENTIRETY, AND FULLY UNDERSTANDS ALL OF THE PROVISIONS CONTAINED HEREIN.
CONSULTANT FURTHER ACKNOWLEDGES THAT HE HAS HAD SUFFICIENT TIME TO REVIEW THIS
AGREEMENT, AND IS SIGNING IT WITH FULL KNOWLEDGE OF THE CONSEQUENCES OF THE
RESTRICTIONS CONTAINED IN SECTIONS 3 AND 4.
IN WITNESS WHEREOF, the parties, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.
WITNESS: DIPLOMAT AMBASSADOR, INC.
By: /s/ R. Slucker
---------------------- ----------------------
/s/ Jay Kitnik
---------------------- -------------------------
JAY KITNIK
9
<PAGE>
EXHIBIT 10.11
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made this 9th day of May,
1995 by and between Diplomat Ambassador, Inc., a Delaware corporation, with its
principal office at 4211 Van Kirk Street, Philadelphia, Pennsylvania (the
"Company"), and Chanuk, Inc., a corporation having its principal place of
business at c/o Metro Equity, Inc., Suite 333, Jenkintown Commons, Old York Road
and Wyncote Road, Jenkintown, Pennsylvania (the "Consultant").
B A C K G R 0 U N D:
A. The Company is engaged in the business of wholesale sale and
distribution of eyewear.
B. The Company wishes to assure itself of the services of the Consultant,
and the Consultant desires to be engaged by the Company, on the terms and
conditions set forth below.
NOW THEREFORE, in consideration of the promises and mutual agreements
hereinafter set forth, and intending to be legally bound, the Company and the
Consultant hereby agree as follows:
1. Term. The Company shall engage the Consultant and the Consultant shall
provide to the Company certain consulting, advisory and other supportive
services in connection with the business of wholesale sale and distribution of
eyewear conducted by the Company (the "Services"), commencing as of the date
hereof and continuing continuously thereafter for a period of ten (10) calendar
years on the terms and conditions set forth below.
<PAGE>
2. Time and Efforts. The Consultant shall provide the Services to the
Company on an as requested basis not to exceed an average of five (5) hours per
week during the term of this Agreement. The Consultant shall diligently and
conscientiously devote its time and attention and its best efforts to the
discharge of its duties hereunder and to promote the good will of the Company.
3. Compensation. As compensation for the Services rendered by the
Consultant pursuant to this Agreement, the Company shall pay to the Consultant,
the sum of Two Hundred Sixty Thousand Dollars ($260,000.00) in equal,
consecutive installments of Five Hundred Dollars ($500.00) per week during the
term of this Agreement.
4. Independent Contractor. It is mutually agreed and understood by the
parties hereto that the Consultant is an independent contractor hereunder and
the Consultant, and its agents, servants and employees shall not be considered
to be an employee of the Company for any purpose whatsoever. The Consultant
shall be responsible for the payment of any and all taxes and charges relating
to consulting fees paid hereunder including, without limitation, Federal, state
and local income taxes and social security on employees designated by Consultant
to perform the Services under this Agreement.
5. Entire Agreement and Modification. This Agreement constitutes the
entire agreement between the Company and the Consultant with respect to the
subject matter hereof and there are no oral agreements or undertakings between
such parties affecting
-2-
<PAGE>
this Agreement. Any future modifications hereto, in order to be binding upon the
parties, must be reduced to writing and executed by both parties to this
Agreement.
6. Enforceability. If any provision of this Agreement shall be invalid or
unenforceable, in whole or in part, then such provision shall be deemed to be
modified or restricted to the extent and in a manner necessary to render the
same valid and enforceable, or shall be deemed excised from this Agreement, as
the case may require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.
7. Pennsylvania Jurisdiction and Law. The parties hereto consent to the
jurisdiction of the Courts of the Commonwealth of Pennsylvania and the
application of laws of the Commonwealth of Pennsylvania to any controversy
hereunder, without regard to the laws of conflict of law governing in the
Commonwealth of Pennsylvania, and without regard to any rule of construction or
interpretation relating to which party drafted this Agreement.
8. Successors and Assigns. This Agreement shall inure to the benefit of,
and be binding upon, the heirs, executors, administrators, successors and
assigns of the respective parties hereto, but in no event may the Company assign
and delegate to any other party the Company's rights, duties or obligations
under this Agreement.
-3-
<PAGE>
9. Headings. The section headings herein shall have absolutely no legal
significance and are used solely for convenience of reference.
10. Counterparts. This Agreement may be executed in one (1) or more
counterparts and by the different parties hereto and separate counterparts, each
of which when executed shall be deemed to be an original, but all of which when
taken together shall constitute one (1) and the same instrument.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as
of the date and year first written above.
THE COMPANY:
DIPLOMAT AMBASSADOR, INC.,
a Delaware corporation
BY: /s/ Barry Budilov
--------------------------------
Name: __________________________
Title: _________________________
THE CONSULTANT:
CHANUK, INC.,
a Pennsylvania corporation
BY: /s/ Barry Budilov
--------------------------------
Name: __________________________
Title: _________________________
-4-
<PAGE>
EXHIBIT 10.12
PROMISSORY NOTE
$150,000.00 June 26, 1996
DIPLOMAT AMBASSADOR, INC. ("Purchaser"), for value received, hereby
promises to pay to WINDSOR OPTICAL, INC. ("Windsor") at 1039 Old Ford Road,
Huntingdon Valley, Pennsylvania 19006 or at such other place as may be
designated in writing by Windsor, the principal sum of $150,000.00. Such
principal sum shall be payable, together with interest on the unpaid principal
balance at the rate of 7% per annum, in thirty-six (36) equal monthly
installments of $5,654.23 each in accordance with the amortization schedule
annexed hereto. The first installment payment under this note shall be paid on
January 10, 1997, and the remaining installments shall be paid thereafter on the
10th day of each succeeding month. Principal or interest may be prepaid by
Purchaser at any time, in whole or in part, without premium or penalty, based on
the then-current value of the amount being prepaid, which shall be calculated
assuming interest at the prime rate in effect at the time of prepayment. Amounts
prepaid shall be credited first against accrued but unpaid interest and then
against installments last coming due.
Purchaser's obligations to pay the amounts due pursuant to this note are
subject to a right of set-off pursuant to the agreement dated June 26, 1996 by
and among Windsor, Jay Kitnick, Kenneth Kitnick and Purchaser (the "Asset Sale
Agreement").
The entire principal sum, or the unpaid principal balance thereof, and all
accrued but unpaid interest thereon, shall become immediately due and payable
upon the occurrence of any one
<PAGE>
of the following, each of which shall be an "Event of Default":
(i) Default in the payment of any installment of principal or interest for
five (5) days after it fell due which is not cured within ten (10) days after
written notice of such default is given to Purchaser by (a) certified or U.S.
Express mail, return receipt requested, or (b) Federal Express or other
overnight courier which provides a signed receipt for delivery, which notice
shall be deemed to have been given on the date actually delivered.
(ii) The filing by or against Purchaser in any court pursuant to any
statute either of the United States or of any state, of a petition in bankruptcy
or insolvency of for reorganization or for the appointment of a receiver or
trustee of all or a portion of the property of Purchaser, which is not actively
challenged by Purchaser, or is not discharged within sixty (60) days thereof, or
Purchaser making an assignment or similar arrangement for the benefit of
creditors.
Windsor shall be entitled to all costs of collection, including reasonable
attorneys' fees, incurred by Windsor in collecting or attempting to collect (a)
amounts due and payable under this note after the occurrence of an Event of
Default, or (b) amounts improperly set off against amounts due and payable under
this note and not paid into escrow within the time period specified in Section
25 of the Asset Sale Agreement.
The failure of Windsor to exercise any right under this note shall not be
considered a waiver of such right, which may be exercised at any time and from
time to time. The acceptance by
<PAGE>
Windsor of less than the amount due and payable hereunder at the time any
payment is made hereunder shall not be considered a waiver of Windsor's right to
receive all amounts due and payable hereunder.
Any dispute arising out of or relating to this note shall be settled by
arbitration in Essex County, New Jersey in accordance with the provisions set
forth in the New Jersey Arbitration Act, N.J.S.A. 2A:24-1 et seq. The arbitrator
shall be a retired judge selected by the agreement of the parties to the
dispute, or, if the parties to the dispute cannot agree on an arbitrator, he
shall be a retired judge selected by the assignment judge of Essex County, New
Jersey. The decision of such arbitration shall be final and binding on both
parties, and may be entered as a judgment in any court of appropriate subject
matter jurisdiction located in New Jersey. Notwithstanding the foregoing,
however, in the event that a dispute between Purchaser and Windsor involves the
failure of Purchaser to make payments under this Note, based on a claimed right
to a set-off or otherwise, and Purchaser fails to place the amount in dispute in
escrow within thirty (30) days after receipt of written notice from Windsor,
Windsor shall have the right to have such dispute resolved in a court of
competent jurisdiction, rather than by arbitration.
This note shall be governed by and construed in accordance with the laws
of the State of New Jersey applicable to agreements made and to be performed
wholly within such State.
Presentment, demand, protest, notice of protest, notice of dishonor and
all other notices and demands (other than those
<PAGE>
specifically required by this note) are hereby waived.
ATTEST: DIPLOMAT AMBASSADOR, INC.
/s/ Harriet Schaeffer By: /s/ Barry Budilov
- --------------------- ---------------------
BARRY BUDILOV
<PAGE>
LOAN AMORTIZATION SCHEDULE
Loan Amortized at 7%
Payment Payment Principal
Date Number Amount Principal Interest Balance
- --------------------------------------------------------------------------------
Opening Balance 155,200.00
1/10/97 1 5,654.23 4,731.53 922.70 150,468.47
2/10/97 2 5,654.23 4,759.66 894.57 145,708.81
3/10/97 3 5,654.23 4,871.79 782.44 140,837.02
4/10/97 4 5,654.23 4,816.92 837.31 136,020.10
5/10/97 5 5,654.23 4,871.65 782.58 131,148.45
6/10/97 6 5,654.23 4,874.53 779.70 126,273.92
7/10/97 7 5,654.23 4,927.72 726.51 121,346.20
8/10/97 8 5,654.23 4,932.80 721.43 116,413.40
9/10/97 9 5,654.23 4,962.13 692.10 111,451.27
10/10/97 10 5,654.23 5,013.00 641.23 106,438.27
11/10/97 11 5,654.23 5,021.43 632.80 101,416.84
12/10/97 12 5,654.23 5,070.74 583.49 96,346.10
1/10/98 13 5,654.23 5,081.43 572.80 91,264.57
2/10/98 14 5,654.23 5,111.64 542.59 86,153.03
3/10/98 15 5,654.23 5,191.60 462.63 80,961.43
4/10/98 16 5,654.23 5,172.90 481.33 75,788.53
5/10/98 17 5,654.23 5,218.19 436.04 70,570.34
6/10/98 18 5,654.23 5,234.67 419.56 65,335.67
7/10/98 19 5,654.23 5,278.33 375.90 60,057.34
8/10/98 20 5,654.23 5,297.18 357.05 54,760.16
9/10/98 21 5,654.23 5,323.67 325.56 49,431.49
10/10/98 22 5,654.23 5,369.83 284.40 44,061.86
11/10/98 23 5,654.23 5,392.27 261.96 38,669.39
12/10/98 24 5,654.23 5,431.75 222.48 33,237.64
1/10/99 25 5,654.23 5,456.63 197.60 27,781.01
2/10/99 26 5,654.23 5,489.07 165.16 22,291.94
3/10/99 27 5,654.23 5,534.53 119.70 16,757.41
4/10/99 28 5,654.23 5,554.60 99.63 11,202.81
5/10/99 29 5,654.23 5,589.78 64.45 5,613.03
6/10/99 30 5,648.40 5,613.03 33.37 0.00
GRAND TOTAL 169,619.07 155,200.00 14,419.07 0.00
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.13
PROMISSORY NOTE
$300,000.00 June 26, 1996
DIPLOMAT AMBASSADOR, INC. ("Purchaser"), for value received hereby
promises to pay to WINDSOR OPTICAL, INC. ("Windsor") at 1039 Old Ford Road,
Huntingdon Valley, Pennsylvania 19006 or at such other place as may be
designated in writing by Windsor, the principal sum of $300,000.00. Such
principal sum shall be payable, together with interest on the unpaid principal
balance at the rate of 7% per annum, in eighty four (84) equal monthly
installments of $4,527.80 each in accordance with the amortization schedule
annexed hereto. The first installment payment under this note shall be paid on
July 20, 1996, and the remaining installments shall be paid thereafter on the
20th day of each succeeding month. Principal or interest may be prepaid by
Purchaser at any time, in whole or in part, without premium or penalty, based on
the then-current value of the amount being prepaid, which shall be calculated
assuming interest at the prime rate in effect at the time of prepayment. Amounts
prepaid shall be credited first against accrued but unpaid interest and then
against installments last coming due.
Purchaser's obligations to pay the amounts due pursuant to this note are
subject to a right of set-off pursuant to the agreement dated June 26, 1996 by
and among Windsor, Jay Kitnick, Kenneth Kitnick and Purchaser (the "Asset Sale
Agreement").
The entire principal sum, or the unpaid principal balance thereof, and all
accrued but unpaid interest thereon, shall
<PAGE>
become immediately due and payable upon the occurrence of any one of the
following, each of which shall be an "Event of Default":
(i) Default in the payment of any installment of principal or interest for
five (5) days after it fell due which is not cured within ten (10) days after
written notice of such default is given to Purchaser by (a) certified or U.S.
Express mail, return receipt requested, or (b) Federal Express or other
overnight courier which provides a signed receipt for delivery, which notice
shall be deemed to have been given on the date actually delivered.
(ii) The filing by or against Purchaser in any court pursuant to any
statute either of the United States or of any state, of a petition in bankruptcy
or insolvency of for reorganization or for the appointment of a receiver or
trustee of all or a portion of the property of Purchaser, which is not actively
challenged by Purchaser, or is not discharged within sixty (60) days thereof, or
Purchaser making an assignment or similar arrangement for the benefit of
creditors.
Windsor shall be entitled to all costs of collection, including reasonable
attorneys' fees, incurred by Windsor in collecting or attempting to collect (a)
amounts due and payable under this note after the occurrence of an Event of
Default, or (b) amounts improperly set off against amounts due and payable under
this note and not paid into escrow within the time period specified in Section
25 of the Asset Sale Agreement.
The failure of Windsor to exercise any right under this note shall not be
considered a waiver of such right, which may be
<PAGE>
exercised at any time and from time to time. The acceptance by Windsor of less
than the amount due and payable hereunder at the time any payment is made
hereunder shall not be considered a waiver of Windsor's right to receive all
amounts due and payable hereunder.
Any dispute arising out of or relating to this note shall be settled by
arbitration in Essex County, New Jersey in accordance with the provisions set
forth in the New Jersey Arbitration Act, N.J.S.A. 2A:24-1 et seq. The arbitrator
shall be a retired judge selected by the agreement of the parties to the
dispute, or, if the parties to the dispute cannot agree on an arbitrator, he
shall be a retired judge selected by the assignment judge of Essex County, New
Jersey. The decision of such arbitration shall be final and binding on both
parties, and may be entered as a judgment in any court of appropriate subject
matter jurisdiction located in New Jersey. Notwithstanding the foregoing,
however, in the event that a dispute between Purchaser and Windsor involves the
failure of Purchaser to make payments under this Note, based on a claimed right
to a set-off or otherwise, and Purchaser fails to place the amount in dispute in
escrow within thirty (30) days after receipt of written notice from Windsor,
Windsor shall have the right to have such dispute resolved in a court of
competent jurisdiction, rather than by arbitration.
This note shall be governed by and construed in accordance with the laws
of the State of New Jersey applicable to agreements made and to be performed
wholly within such State.
Presentment, demand, protest, notice of protest, notice of
<PAGE>
dishonor and all other notices and demands (other than those specifically
required by this note) are hereby waived.
ATTEST: DIPLOMAT AMBASSADOR, INC.
/s/ Harriet Schaeffer By: /s/ Barry Budilov
- --------------------- ---------------------
BARRY BUDILOV
<PAGE>
LOAN AMORTIZATION SCHEDULE
Loan Amortized at 7%
Payment Payment Principal
Date Number Amount Principal Interest Balance
- --------------------------------------------------------------------------------
Opening Balance 300,000.00
7/20/96 1 4,527.80 2,80l.77 1,725.03 297,198.23
8/20/96 2 4,527.80 2,760.90 1,766.90 294,437.33
9/20/96 3 4,527.80 2,777.31 1,750.49 291,660.02
10/20/96 4 4,527.80 2,849.76 1,678.04 288,810.26
11/20/96 5 4,527.80 2,810.76 1,717.04 285,999.50
12/20/96 6 4,527.80 2,882.32 1,645.48 283,117.18
1/20/97 7 4,527.80 2,844.61 1,683.19 280,272.57
2/20/97 8 4,527.80 2,861.52 1,666.28 277,411.05
3/20/97 9 4,527.80 3,038.14 1,489.66 274,372.91
4/20/97 10 4,527.80 2,896.60 1,631.20 271,476.31
5/20/97 11 4,527.80 2,965.88 1,561.92 268,510.43
6/20/97 12 4,527.80 2,931.45 1,596.35 265,578.98
7/20/97 13 4,527.80 2,999.81 1,527.99 262,529.17
8/20/97 14 4,527.80 2,966.71 1,561.09 259,612.46
9/20/97 15 4,527.80 2,984.35 1,543.45 256,628.11
10/20/97 16 4,527.80 3,051.31 1,476.49 253,576.80
11/20/97 17 4,527.80 3,020.23 1,507.57 250,536.57
12/20/97 18 4,527.80 3,086.24 1,441.56 247,470.33
1/20/98 19 4,527.80 3,056.54 1,471.26 244,413.79
2/20/98 20 4,527.80 3,074.71 1,453.09 241,339.08
3/20/98 21 4,527.80 3,231.84 1,295.96 238,107.24
4/20/98 22 4,527.80 3,112.20 1,415.60 234,995.04
5/20/98 23 4,527.80 3,175.77 1,352.03 231,819.27
6/20/98 24 4,527.80 3,149.59 1,378.21 228,669.68
7/20/98 25 4,527.80 3,212.17 1,315.63 225,457.51
8/20/98 26 4,527.80 3,187.41 1,340.39 222,270.10
9/20/98 27 4,527.80 3,206.36 1,321.44 219,063.74
10/20/98 28 4,527.80 3,267.43 1,260.37 215,796.31
11/20/98 29 4,527.80 3,244.85 1,282.95 212,551.46
12/20/98 30 4,527.80 3,304.90 1,222.90 209,246.56
1/20/99 31 4,527.80 3,283.79 1,244.01 205,962.77
2/20/99 32 4,527.80 3,303.31 1,224.49 202,659.46
3/20/99 33 4,527.80 3,439.55 1,088.25 199,219.91
4/20/99 34 4,527.80 3,343.40 1,184.40 195,876.51
5/20/99 35 4,527.80 3,400.84 1,126.96 192,475.67
6/20/99 36 4,527.80 3,383.49 1,144.31 189,092.18
7/20/99 37 4,527.80 3,439.87 1,087.93 185,652.31
8/20/99 38 4,527.80 3,424.06 1,103.74 182,228.25
9/20/99 39 4,527.80 3,444.42 1,083.38 178,783.83
10/20/99 40 4,527.80 3,499.15 1,028.62 175,284.85
11/20/99 41 4,527.80 3,485.70 1,042.10 171,798.95
12/20/99 42 4,527.80 3,539.37 988.43 168,259.58
1/20/00 43 4,527.80 3,527.46 1,000.34 164,732.12
2/20/00 44 4,527.80 3,548.43 979.37 161,183.69
3/20/00 45 4,527.80 3,631.35 896.45 157,552.34
4/20/00 46 4,527.80 3,591.12 936.68 153,961.22
5/20/00 47 4,527.80 3,842.00 885.80 150,319.22
6/20/00 48 4,527.80 3,634.12 893.68 146,685.10
7/20/00 49 4,527.80 3,683.86 843.94 143,001.24
8/20/00 50 4,527.80 3,677.63 850.17 139,323.61
9/20/00 51 4,527.80 3,699.49 828.31 135,624.12
10/20/00 52 4,527.80 3,747.50 780.30 131,876.62
11/20/00 53 4,527.80 3,743.77 784.03 128,132.85
12/20/00 54 4,527.80 3,790.80 737.20 124,342.25
1/20/01 55 4,527.80 3,788.58 739.24 120,553.69
2/20/01 56 4,527.80 3,811.08 716.72 116,742.61
3/20/01 57 4,527.80 3,900.91 626.89 112,841.70
4/20/01 58 4,527.80 3,856.93 670.87 108,984.77
5/20/01 59 4,527.80 3,900.76 627.04 105,084.01
6/20/01 60 4,527.80 3,903.05 624.75 101,180.98
7/20/01 61 4,527.80 3,945.66 582.14 97,235.30
8/20/01 62 4,527.80 3,949.72 578.08 93,285.58
9/20/01 63 4,527.80 3,973.20 554.60 89,312.38
10/20/01 64 4,527.80 4,013.95 513.85 85,298.43
11/20/01 65 4,527.80 4,020.68 507.12 81,277.75
12/20/01 66 4,527.80 4,060.17 467.63 77,217.58
1/20/02 67 4,527.80 4,068.73 459.07 73,148.85
2/20/02 68 4,527.80 4,092.92 434.88 69,055.93
<PAGE>
LOAN AMORTIZATION SCHEDULE
Loan Amortized at 7%
Payment Payment Principal
Date Number Amount Principal Interest Balance
- --------------------------------------------------------------------------------
3/20/02 69 4,527.80 4,156.98 370.82 64,898.95
4/20/02 70 4,527.80 4,141.96 385.84 60,756.99
5/20/02 71 4,527.80 4,178.24 349.56 56,578.75
6/20/02 72 4,527.80 4,191.43 336.37 52,387.32
7/20/02 73 4,527.80 4,226.39 301.41 48,160.83
8/20/02 74 4,527.80 4,241.47 286.33 43,919.46
9/20/02 75 4,527.80 4,266.69 261.11 39,652.77
10/20/02 76 4,527.80 4,299.66 228.14 35,353.11
11/20/02 77 4,527.80 4,317.62 210.18 31,035.49
12/20/02 78 4,527.80 4,349.24 175.56 26,686.25
1/20/03 79 4,527.80 4,369.14 158.66 22,317.11
2/20/03 80 4,527.80 4,395.12 132.68 17,921.99
3/20/03 81 4,527.80 4,431.56 96.24 13,490.43
4/20/03 82 4,527.80 4,447.60 80.20 9,042.83
5/20/03 83 4,527.80 4,475.77 52.03 4,567.06
6/20/03 84 4,594.21 4,567.06 27.15 0.00
GRAND TOTAL 380,401.61 300,000.00 30,401.61 0.00
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<PAGE>
Exhibit 10.14
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DIPLOMAT AMBASSADOR, INC.
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CORESTATES BANK, NA.,
-------------------------
LOAN AGREEMENT
-------------------------
JUNE 7, 1996
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<PAGE>
LOAN AGREEMENT, dated June 7, 1996, between DIPLOMAT AMBASSADOR, INC.,
a Delaware corporation ("Borrower") and CORESTATES BANK, N.A. ("Lender").
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined).
"Acceptance" has the meaning given to such term in Section 2.11.
"Acceptance Commission" means the amount charged by Lender for the
creation of an Acceptance, calculated in accordance with generally accepted
financial practice on the basis of (A) Lender's Adjusted B/A Rate at the time of
acceptance and discount and (B) a commission charge based on Lender's standard
rate schedule at the time of acceptance and discount.
"Acceptance Liability" means, at any date of determination, the sum of
(A) the aggregate face amount of all Acceptances that have not then matured plus
(B) the aggregate amount of all matured Acceptances that have not theretofore
been paid by the Borrower to Lender.
"Acceptance Margin" means 2.3% per annum.
"Account" has the meaning given to such term in the Pennsylvania
Uniform Commercial Code as in effect on the date hereof.
"Account Advance Rate" means 75%.
"Adjusted B/A Rate" means, for each day, Lender's B/A Rate for such
day plus the Acceptance Margin.
"Adjusted Prime Rate" has the meaning given such term in Section 2.14.
"Advance" has the meaning given such term in Section 2.01.
"Advance Request" has the meaning given such term in Section 2.02.
"Affiliate" of any Person means any other Person who controls, is
Controlled by or is under common control with such Person.
<PAGE>
"Amount of Unfunded Benefit Liabilities" has the meaning given to
such term in ss.4001 (a) (18) of ERISA.
"Applicable Margin" means .5%, provided that upon Lender's receipt of
Borrower's financial statements as of December 31, 1996 in accordance with
Section 5.02, the Applicable Margin shall be (A) .25% if despite the fact that
Borrower has not acquired substantially all the assets of Windsor Optical,
Borrower has (i) net income before taxes of not less than $1,711,500 for the
year ending December 31, 1996 and (ii) Tangible Net Worth of not less than
$1,050,000 as of December 31, 1996; or (B) zero if Borrower (1) acquires
substantially all of the assets of Windsor Optical and Lender is satisfied with
the terms of the purchase agreement relating to such acquisition, (2) has net
income before taxes of not less than $2,401,000 for the year ending December 31,
1996 and (3) has net sales of $20,457,000 as of December 31, 1996. If
applicable, the foregoing adjustment to the Applicable Margin shall become
effective on April 1, 1997.
"Audit Fee" has the meaning given such term in Section 2.16.
"B/A Rate" means for each day the basic rate determined by Lender to
be in effect on such day for the internal guidance of its personnel in pricing
bankers' acceptances accepted for discount for its customers in amounts and
maturities comparable to drafts offered by Borrower to Lender on such date for
acceptance and discount. Lender's B/A Rate is not necessarily the lowest rate
that Lender charges for acceptance and discount of bankers' acceptances.
"Base Rate" means at any time the higher of (A) the Federal Funds Rate
plus one-half percent, or (B) the Prime Rate.
"Borrower" has the meaning given to such terms in the introductory
paragraph hereof.
"Borrowing Base" means (A) the Account Advance Rate multiplied by the
face amount of Borrower's Eligible Accounts, minus (B) the face amount of
Borrower's unapplied Account credits, which have been carried on Borrower's
books for a period equal to or greater than 90 days, plus (C) the lesser of (1)
50% of Eligible Inventory, valued at the lower of cost or market, less an
Inventory reserve of $45,000, or (2) $3,000,000, minus (D) Borrower's Letter of
Credit Liability, minus (E) Borrower's Acceptance Liability.
"Borrowing Base Certificate" means a certificate in the form attached
hereto as Exhibit 3.01(M).
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<PAGE>
"Budilov Mortgage" means the mortgage agreement, substantially in the
form of Exhibit 3.01(S), executed by the Budilov's in favor of Lender.
"Budilovs" means Barry Budilov and Carole Budilov, husband and wife,
respectively, residing at 710 Germantown Pike, Lafayette Hill, Pennsylvania
19444.
"Business Day" means any day other than a Saturday, Sunday, or other
day on which commercial banks in Philadelphia, Pennsylvania are authorized or
required to close under the laws of the Commonwealth of Pennsylvania.
"Capital Asset" means any property or asset (real, personal or mixed,
tangible or intangible) which is of a kind subject to an allowance for
depreciation or amortization under GAAP.
"Capital Lease" means any lease or sublease of real, personal or mixed
property accounted for as a capitalized lease in accordance with GAAP.
"Cash Collateral Account" has the meaning given such term in Section
2.18.
"Cash Equivalents" means at any date demand deposits, time deposits or
certificates of deposit in United States commercial banks having shareholders'
equity of at least $500,000,000 and maturing not in excess of one year from the
date of acquisition; obligations backed by the full faith and credit of the
United States of America or an agency thereof maturing not in excess of one year
from the date of acquisition; and commercial paper maturing not in excess of one
year from the date of acquisition and rated P-2 or better by Moody's Investors
Service, Inc. or A-2 or better by Standard & Poor's Rating Agency on the date of
acquisition.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation, and Liability Act, as amended from time to time.
"Chattel Paper" has the meaning given to such term in the Pennsylvania
Uniform Commercial Code as in effect on the date hereof.
"Closing Date" means the date on which all of the conditions precedent
contained in Article III are satisfied.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
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<PAGE>
"Collateral" has the meaning given such term in Section 3.01 (N).
Collateral Pledge and Assignment Agreement" means the collateral
pledge and assignment agreement, substantially in the form of Exhibit 3.01(R),
executed by the Sluckers.
"Controlled Group" means all trades or business under common control
(as defined in ss.414(b) (1) of ERISA) with Borrower.
"Credit Limit" means the lesser of (A) the Borrowing Base or (B)
$6,000,000, provided that if Borrower does not acquire substantially all of the
assets of Windsor Optical within 30 days of the Closing Date, or Lender is
dissatisfied with the terms of the purchase agreement relating to such
acquisition, then the term "Credit Limit" shall mean the lesser of (A) the
Borrowing Base or (B) $5,000,000.
"Credit Obligation" means, for any Person, (A) any obligation of such
Person for the payment of borrowed money or the installment purchase price of
Capital Assets or under a Capital Lease or (B) any obligation secured by a lien
on or security interest in any asset of such Person, whether or not such Person
has assumed liability for such obligation.
"Default" means any event, occurrence or circumstance that, with the
giving of notice or the passage of time, or both, would, if unremedied, become
an Event of Default.
"Default Rate" has the meaning given such term in Section 2.23.
"Defined Benefit Pension Plan" means a defined benefit plan (other
than a Multiemployer Plan) as defined in ss.3(35) of ERISA.
"Defined Contribution Plan" means an individual account plan as
defined in ss.3(34) of ERISA.
"Delinquent Purchaser" means a Purchaser more than 50% of whose
aggregate Account indebtedness to the Borrower has remained unpaid for more than
90 days after the issuance of the related invoices.
"Demand Line" means Lender's obligation to make Advances under the
terms and conditions set forth in Section 2.02.
"Demand Note" means the promissory note duly executed by Borrower
pursuant to Section 2.03.
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<PAGE>
"Document" has the meaning given to such term in the Pennsylvania
Uniform Commercial Code as in effect on the date hereof.
"Eligible Acceptance" means an Acceptance (A) with respect to which
Lender is not required to maintain any reserve under Regulation D or any law or
regulation amending or replacing Regulation D (by reason of ss.2.04(a) (1) (vii)
(E) of Regulation D or any provision amending or replacing such provision), and
(B) which is eligible for discount by Federal Reserve Banks under paragraph 7 of
ss.13 of the Federal Reserve Act, 12 U.S.C. ss.372, or any law or regulation
amending or replacing such law, in either case as such law or regulation may be
interpreted from time to time by the Board of Governors of the Federal Reserve
System or its staff or the staff of any Federal Reserve Bank.
"Eligible Account" means any Account created in an arm's length
transaction which meets all of the following specifications at the time of
determination of Eligible Accounts: (A) the Account is lawfully owned by
Borrower free and clear of all liens, security interests and assignments except
as set forth in clause (B), and Borrower has the right of assignment thereof and
the power to grant a security interest therein; (B) the Account is subject to a
first priority perfected security interest in favor of Lender; (C) the Account
is valid and enforceable, representing the undisputed indebtedness of the
Purchaser to Borrower; (D) the Account is not subject to any claim of defense,
set-off, counterclaim, warranty claim, credit, allowance or adjustment; (E) if
the Account arises from the sale of goods, such sale was an absolute sale and
not on consignment or on approval basis, and such goods have been shipped or
otherwise made available to the Purchaser in accordance with the Borrower's
agreements with such Purchaser; (F) if the Account arises from the performance
of services, such services have actually been performed; (G) the Account arose
in the ordinary course of business of Borrower; (H) no notice of the bankruptcy,
receivership, reorganization or insolvency of the Purchaser owing such Account
has been received by Lender or Borrower; (I) the Account has remained unpaid for
less than 90 days from the date of original invoice; (J) the Purchaser is not
any federal, state or local government or governmental agency; (K) the Account
does not arise out of the shipment of goods outside of the United States; (L)
the Account does not arise out of transactions between Borrower and (1) a
non-United States government, governmental agency or government-controlled
business or (2) a Person who is not subject to the jurisdiction of the court
system of the United States or any state of the United States; (M) the Purchaser
for such Account is not otherwise in default pursuant to the terms underlying
the agreement creating such Account; (N) the Purchaser owing such Account is not
Borrower or an Affiliate of Borrower; (0) if the Account is a contra Account,
the amount is net of any amounts owed to the Purchaser thereof; (P) the
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<PAGE>
Account is not owed by a Delinquent Purchaser or any Subsidiary or Affiliate of
a Delinquent Purchaser; and (Q) such Account is otherwise acceptable to Lender
in its reasonable discretion.
"Eligible Inventory" means all Inventory of Borrower which: (A) is
finished goods or raw materials; (B) is located at one of the locations
identified in the Security Agreement (and Borrower has obtained a lien waiver
from the landlord, if any); (C) in the case of finished goods, conforms in all
respects to the representations and warranties relating thereto; (D) is in good
condition and repair; (E) is not damaged, outdated or obsolete or otherwise
deemed unsalable by Lender; (F) is held for sale in the ordinary course of
business of the Borrower as conducted on the date hereof; (G) is not being held
on consignment; (H) is not subject to a security interest other than in favor of
Lender and, in the case of finished goods, is subject to a first priority
perfected security interest in favor of Lender; (I) is not display racks or
components thereof; and (J) is otherwise acceptable to Lender in its reasonable
discretion.
"Employee Benefit Plan" has the meaning given to such term in ss.3(3)
of ERISA.
"Environmental Law" means any federal, state, or local statute,
ordinance, regulation, rule or other law concerning or relating to the
protection of health and the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations thereunder.
"Event of Default" has the meaning given to such term in Section 6.01.
"Federal Funds Rate" means, for each day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) which is the weighted average
of the rates on overnight federal funds transactions arranged on such day by
federal funds brokers, computed and released by the Federal Reserve Bank of
Philadelphia (or any successor).
"Fiscal Year" means the fiscal year of Borrower ending December 31.
"GAAP" means generally accepted accounting principles, applied in a
consistent manner.
"Inventory" has the meaning given to such term in the Pennsylvania
Uniform Commercial Code as in effect on the date hereof.
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<PAGE>
"Letters of Credit" means one or more letters of credit issued by
Lender for the account of the Borrower in accordance with the provisions of
Article II, Part B, available upon presentation of documents evidencing the sale
or shipment of goods to, or the purchase of goods by, the Borrower in the
ordinary course of business.
"Letter of Credit Liability" means, at any date of determination, the
sum of (A) the maximum aggregate amount that is or at any time thereafter may
become available for drawing or demand under all Letters of Credit then
outstanding, plus (B) the aggregate amount of all drawings and demands under
Letters of Credit that have not theretofore been reimbursed by the Borrower,
plus (C) accrued and unpaid interest on the amounts described in clause (B) at
the rate stated in Section 2.14.
"License Inventory Liquidation Agreement" means the letter agreement,
substantially in the form of Exhibit 3.0l(AA), executed by Borrower and each of
the Sluckers and each of the Budilovs.
"Loan Documents" means this Agreement, the Demand Note, the Security
Agreement, the Surety Agreements, the Budilov Mortgage, the Collateral Pledge
and Assignment Agreement, the Subordination Agreements and each other agreement,
instrument, certificate and other document executed and delivered in connection
with this Agreement or the transactions contemplated hereby.
"Lockbox" has the meaning give such term in Section 2.18.
"Margin Stock" has the meaning given to that term in Regulation U of
the Board of Governors of the Federal Reserve System.
"Multiemployer Plan" has the meaning given to such term in ss.4001 (a)
(3) of ERISA.
"Operating Account" has the meaning given such term in Section 2.18.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" has the meaning given such term in Section 5.06.
"Person" means any individual, corporation, partnership, joint
venture, joint-stock company, trust,
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<PAGE>
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" means an Employee Benefit Plan or other plan maintained for
employees of Borrower or any member of Borrower's Controlled Group and covered
by ERISA.
"Prime Rate" means for each day the rate of interest for loans
established and publicly announced by Lender from time to time as its prime rate
as in effect on such day. The Prime Rate is not necessarily the lowest rate of
interest that Lender charges any of its customers.
"Prohibited Transaction" has the meaning given to such term in ss.406
of ERISA, ss.4975(c) of the Code and any Treasury regulations issued thereunder.
"Purchaser" means a buyer of goods from Borrower or a customer for
whom services have been rendered or materials furnished by Borrower.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as amended or supplemented from time to time.
"Reportable Event" has the meaning given to such term in ss.4043(b) of
ERISA.
"Security Agreement" means the Security Agreement, substantially in
the form of Exhibit 3.01(B), executed by Borrower in favor of Lender.
"Sluckers" means Rudy Slucker and Linda Slucker, husband and wife,
respectively, residing at 66 Duffield Drive, South Orange, New Jersey 07079.
"Subordinated Indebtedness" means Borrower's indebtedness as of the
Closing Date to Rudy Slucker in the original principal amount of $851,500 and
Barry Budilov in the original principal amount of $343,500.
"Subordination Agreements" means the subordination agreements,
substantially in the form of Exhibit 3.01(U), executed by the Sluckers and the
Budilovs.
"Subsidiary" of a Person means any corporation or other entity, more
than 50 percent of the voting capital stock or other ownership interests of
which is owned, directly or indirectly, by such Person.
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<PAGE>
"Surety Agreements" means the surety agreements, substantially in the
form of Exhibit 3.01(Q), executed by the Sluckers and the Budilovs.
"Tangible Assets" means those assets of Borrower which would, in
accordance with GAAP, be classified as tangible assets.
"Tangible Net Worth" means Tangible Assets less Total Liabilities.
"Total Liabilities" means all indebtedness of Borrower which would, in
accordance with GAAP, be classified as liabilities, plus any and all
obligations, contingent or otherwise, of Borrower under any guarantee or surety
agreement.
"Withdrawal Liability" has the meaning given to such term in ss.4201
of ERISA.
SECTION 1.02. Accounting Terms. All accounting terms not specifically
defined herein shall be construed, and all financial data submitted pursuant to
this Agreement shall be prepared, in accordance with GAAP.
ARTICLE II
A. THE DEMAND LINE.
SECTION 2.01. The Demand Line. (A) Subject to the terms and conditions
hereinafter provided, and in reliance upon the representations and warranties of
Borrower herein set forth, until the earlier of demand or termination of the
Demand Line pursuant to Section 6.02, Lender agrees from time to time:
(1) to make advances (each such advance, an "Advance") to Borrower
pursuant to Section 2.02;
(2) to issue Letters of Credit for the account of Borrower pursuant to
Section 2.06; and
(3) to create Acceptances pursuant to Section 2.12.
(B) The aggregate unpaid principal amount of the Demand Line, plus the
Letter of Credit Liability, plus the Acceptance Liability shall not at any time
exceed the Credit Limit.
(C) If, at any time, the limitation in subsection (B) is exceeded,
Borrower shall immediately repay to Lender the amount of such excess.
SECTION 2.02. Making Advances under the Demand Line. (A) Borrower may make
requests by telephone, facsimile or other
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<PAGE>
writing for an Advance under the Demand Line on any Business Day, provided that
such requests (each such request, an Advance Request") are made to Lender no
later than 12:00 P.M. (Philadelphia time) on such Business Day. Each such
Advance Request shall constitute Borrower's representation that, at the time
thereof and giving effect to the Advance requested thereby: (1) no Event of
Default or Default has occurred hereunder; (2) the representations and
warranties contained in this Agreement are reaffirmed and are correct; (3) the
conditions precedent for such Advance as set forth in Section 3.02 hereof have
been satisfied; and (4) the sum of the outstanding principal plus the requested
Advance will not exceed the Credit Limit. Borrower agrees to hold Lender
harmless from any liability for any loss resulting from Lender's reliance on any
telephone call, writing or facsimile copy purportedly made by an authorized
officer of Borrower.
(B) Upon fulfillment of the applicable conditions set forth in Article
III hereof, Lender will immediately make such funds available to Borrower by
depositing the amount thereof into the Operating Account.
SECTION 2.03. The Demand Note. The obligation of Borrower to repay the
outstanding principal, interest and other amounts due under the Demand Line and
its obligation in respect of the Letter of Credit Liability and the Acceptance
Liability shall be evidenced by a promissory note of even date with this
Agreement, payable to the order of Lender, in a principal amount of $6,000,0000
and otherwise substantially in the form of Exhibit 2.03.
SECTION 2.04. Repayment. Upon Lender's demand, (A) Borrower shall repay in
full (1) the aggregate principal amount outstanding principal of the Demand
Line, (2) the amount of any drawings and demands under Letters of Credit that
have not theretofore been reimbursed by Borrower, (3) the amount of all matured
Acceptances that have not theretofore been repaid, and (4) all accrued interest
and other amounts then outstanding hereunder, under the Demand Note or under the
other Loan Documents in respect of the Demand Line; and (B) if there remain any
unexpired Letters of Credit or unmatured Acceptances on such date, Borrower
shall deposit with Lender funds or a letter of credit issued by an issuer
reasonably acceptable to Lender in an amount equal to l05% of the sum of the
Letter of Credit Liability and the Acceptance Liability.
B. LETTERS OF CREDIT
SECTION 2.05. Letters of Credit. Subject to the terms and conditions
hereof, and in reliance upon the representations and warranties of Borrower
herein set forth, until the earlier of demand of amounts owing under the Demand
Line by Lender or
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<PAGE>
termination of Lender's obligation to issue Letters of Credit pursuant to
Section 6.02, Lender will issue irrevocable and, if Borrower so requests,
transferable Letters of Credit for the account of Borrower, subject to the
limitations stated in Section 2.01, and subject to the further limitation that
no Letter of Credit shall be issued that expires more than 365 days after
issuance.
SECTION 2.06. Issuance Procedures. (A) The issuance of Letters of Credit
shall be governed by such electronic and other issuance procedures as shall be
agreed upon from time to time between Lender and Borrower.
(B) Subject to subsection (A), whenever Borrower wishes to request
the issuance of a Letter of Credit, it shall deliver to Lender a written notice
not later than 11:00 A.M. at least three Business Days in advance of the
proposed date of issuance. That notice shall specify (1) the proposed date of
issuance (which shall be a Business Day), (2) the face amount of the Letter of
Credit, (3) the expiration date of the Letter of Credit, (4) the purpose of the
Letter of Credit, and (5) the name and address of the beneficiary. Prior to the
date of issuance, Borrower shall deliver to Lender an application for such
Letter of Credit in the form customarily required by Lender for the issuance of
letters of credit, executed by Borrower and shall specify a precise description
of the documents and the verbatim text of any certificate to be presented by the
beneficiary which, if presented by the beneficiary prior to the expiration date
of the Letter of Credit, would require Lender to make payment under the Letter
of Credit.
(C) Lender may reasonably require customary changes in any documents
and certificates relating to any proposed Letter of Credit issuance, whether
under subsection (A) or (B).
SECTION 2.07. Payment of Amounts Drawn Under Letters of Credit. In
determining whether to pay under any Letter of Credit, Lender shall be
responsible only to determine that the documents and certificates required to be
delivered under that Letter of Credit have been delivered and that they appear
on their face to comply with the requirements of that Letter of Credit. Within
one Business Day of receipt, Lender shall notify Borrower of any documents,
drafts, certificates or other documents that do not on their face comply with
the requirements of the corresponding Letter of Credit. Borrower may authorize
Lender to waive such documentary deficiencies, provided that Borrower gives such
authorization within one Business Day after notification from Lender and in any
event not later than the deadline for payment or dishonor of the draw.
SECTION 2.08. Reimbursement of Lender. Upon the presentation of any
conforming draft or any nonconforming draft
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as to which Borrower authorizes Lender to pay notwithstanding documentary
deficiencies or demand for payment under any Letter of Credit by the beneficiary
thereof and upon notice to Borrower, Borrower shall reimburse Lender on the day
on which such draft or demand is honored in same day funds in an amount equal to
the amount of such draft or demand. Unless Borrower shall have notified Lender
prior to 11:00 A.M. on the date such draft or demand is honored that Borrower
intends to reimburse Lender for the amount of such draft or demand with funds
other than the proceeds of Advances, Borrower shall be deemed to have given
notice to Lender requesting Lender to make an Advance in accordance with Section
2.02 on the day on which such draft or demand is honored in an aggregate amount
equal to the amount of such draft or demand.
SECTION 2.09. Letter of Credit Compensation. (A) Borrower shall pay to
Lender in respect of the Letters of Credit a fee equal to .25% per annum of the
average daily undrawn amount of outstanding Letters of Credit.
(B) Borrower shall also pay to Lender documentary and processing
charges with respect to the issuance, amendment, transfer, administration,
negotiation, cancellation or conversion of each Letter of Credit and for other
services in connection with the Letter of Credit. Such charges shall be based on
Lender's rate schedule at the time of the issuance of the Letter of Credit.
SECTION 2.10. Obligations Absolute. The obligation of Borrower to
reimburse Lender for drawings made under Letters of Credit, shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances including, without limitation,
the following circumstances:
(A) any lack of validity or enforceability of any Letter of Credit;
(B) the existence of any claim, set-off, defense or other right
which Borrower may have at any time against a beneficiary or any transferee of
any Letter of Credit (or any Person for whom any such transferee may be acting),
Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction (including any
underlying transaction between Borrower and the beneficiary for which the Letter
of Credit was procured);
(C) any draft, demand, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect;
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(D) any breach of this Agreement or any document delivered in
connection herewith by any party hereto or thereto;
(E) the fact that a Default or an Event of Default shall have
occurred and be continuing.
C. ACCEPTANCES
SECTION 2.11. Acceptances. Subject to the terms and conditions hereof, and
in reliance upon the representations and warranties herein set forth, until the
earlier of demand of amounts owing under the Demand Line by Lender or
termination of Lender's obligation to create Acceptances under Section 6.02,
Lender agrees to accept and discount for Borrower at such Lender's Adjusted B/A
Rate drafts drawn by Borrower on Lender, payable not more than 180 days from the
date of drawing (each such draft, when accepted and discounted by Lender, being
an "Acceptance"), subject to the limitations stated in Section 2.01, and subject
to the further limitation that each Acceptance shall constitute an Eligible
Acceptance.
SECTION 2.12. Acceptance Procedures. (A) Not later than 10:00 A.M.,
Philadelphia time, on the day of each proposed creation of Acceptances, Borrower
shall give Lender irrevocable notice of (1) the aggregate amount of all time
drafts to be accepted and discounted, which shall not be less than $5,000, (2)
the proposed date of creation of such Acceptances, (3) the maturity of the time
drafts, and (4) the payee of each such draft. Simultaneously with such notice,
Borrower shall submit the time drafts to Lender. Lender may, in its reasonable
discretion, decline to accept for discount any one or more time drafts which it
deems irregular or otherwise unacceptable on account of the identity of the
payee or other party to, or any condition or circumstances of, the transaction
being financed. Each draft presented to Lender for acceptance and discount shall
be accompanied by an eligibility certificate in form and substance satisfactory
to Lender and any bills of lading or other documents as shall be required in
connection therewith. No draft shall be accepted and discounted on any occasion
unless all time drafts so submitted are acceptable to Lender.
(B) If all time drafts submitted are acceptable to the Lender in
accordance with this Agreement, Lender shall notify Borrower of such fact and of
the applicable Adjusted B/A Rates and Lender shall accept and discount the time
drafts so submitted to it. Lender shall make the proceeds of each Acceptance,
less the amount of the applicable Acceptance Commission (which Borrower hereby
authorizes Lender to deduct from such proceeds), available to Borrower at
Lender's principal office by crediting the Operating Account of Borrower or
other account designated by Borrower on the books of such office.
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SECTION 2.13. Payment of Acceptances. (A) Borrower will pay to Lender the
full amount of each Acceptance at its maturity, together with any unpaid
interest or other charges, commissions or costs thereon (other charges and
commissions shall be based on Lender's standard rate schedule at the time of
acceptance and discount). Lender's records of an Acceptance shall constitute
presumptive evidence of the indebtedness relating thereto in the absence of the
executed and accepted draft.
(B) Unless Borrower shall have notified Lender prior to 11:00 A.M.
on the date such Acceptance matures that Borrower intends to pay Lender the
amount of such Acceptance with funds other than the proceeds of Advances,
Borrower shall be deemed to have given notice to Lender requesting Lender to
make an Advance in accordance with Section 2.01 on the day such Acceptance
matures in an aggregate amount of such Acceptance.
D. GENERAL PROVISIONS
SECTION 2.14. Interest. Borrower shall pay interest to Lender on the
principal of the Demand Line outstanding from time to time in arrears commencing
on the first day of the first full month after this Agreement is executed and on
the first day of each month thereafter at an interest rate (the "Adjusted Prime
Rate") equal to the Prime Rate plus the Applicable Margin. The Adjusted Prime
Rate shall change (a) simultaneously with each change in the Prime Rate and (b)
with each change in the Applicable Margin in accordance with the definition
thereof.
SECTION 2.15. Demand Obligation. Lender shall have no obligation to make
any Advance under the Demand Line at any time. Satisfaction or compliance with
the terms and conditions contained herein and the availability under the
Borrowing Base cannot and do not bind or obligate Lender to make Advances under
the Demand Line, issue Letters of Credit or accept and discount Acceptances and
are set forth for informational purposes only. The mere existence of
representations and warranties, covenants and Events of Default contained herein
shall not convert the Demand Line into a term obligation to Lender.
SECTION 2.16. Audit Fees. Borrower shall pay to Lender a fee ("Audit
Fee"), subject to a cap of $3,000 per audit for two audits per year, to
reimburse Lender for its costs and out-of-pocket expenses associated with field
audits of the collateral and inspections of Borrower's books and records. The
initial fee shall be payable no later than the Closing Date and subsequent fees
shall be payable within 30 days of Lender's invoice to Borrower. If a Default or
an Event of Default shall occur and be continuing, Lender may perform collateral
audits as frequently as Lender desires and Borrower shall pay to Lender an Audit
Fee for each such audit, subject to a cap of $3,000 per audit.
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SECTION 2.17. Computation of Interest. The interest on the Loans and other
sums payable hereunder shall be computed on the basis of a year of 360 days for
the actual number of days elapsed.
SECTION 2.18. The Lockbox; the Cash Collateral Account; the Operating
Account. (A) Borrower shall establish and, while any amount is outstanding under
the Demand Line, shall maintain a single post office box which will be under the
exclusive control of Lender (the "Lockbox") into which Borrower shall notify all
Purchasers to make all payments of any of Borrower's Accounts to be made, and
Borrower shall upon the request of Lender indicate on all invoices and other
correspondence with Purchasers to make all payments to Borrower in care of the
Lockbox and further hereby appoints Lender, as Borrower's true and lawful
attorney-in-fact to receive all incoming mail, open all such mail, remove all
collections and remittances therefrom in payment of or on account of Borrower's
Accounts and use Lender's reasonable efforts to forward all other mail so
received to Borrower's chief executive office. Borrower agrees to pay to Lender
promptly when billed a fee for operating the Lockbox equal to the rate, adjusted
for inflation, that Lender customarily charges for lockbox services. Borrower
shall execute such other documents and agreements as may be requested by Lender
in connection with the Lockbox.
(B) Amounts received in the Lockbox shall be deposited upon
collection into a single non-interest bearing account with Lender established by
Borrower over which Lender alone shall have the power of withdrawal (the "Cash
Collateral Account").
(C) Borrower shall establish and maintain its primary operating
checking account (the "operating Account") with Lender, and will use Lender for
all cash management services.
(D) Borrower hereby grants, bargains, conveys and sets over to
Lender a security interest in and lien upon the Lockbox, the Cash Collateral
Account, the Operating Account and any other account established by Borrower
with Lender or any affiliate thereof, and all cash and any other assets at any
time hereafter contained therein.
SECTION 2.19. Payments. (A) Borrower hereby authorizes Lender to charge
the Operating Account for any payments of principal and interest of the Demand
Line, amounts paid by Lender under Letters of Credit not theretofore reimbursed
by Borrower, the amount of each matured Acceptance, interest and Audit Fees, and
any other amounts owing hereunder or under the Demand Note or the other Loan
Documents as and when due. In addition, Lender may, on a daily basis, apply all
collected deposits against the principal balance of the Demand Line. In the
event that Borrower maintains insufficient funds in the Operating Account to
meet
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Borrower's obligations hereunder when due, Borrower hereby authorizes Lender to
make an Advance to pay such obligations to the extent of Borrower's availability
under the Demand Line. If Borrower has insufficient availability under the
Demand Line, Borrower will make all payments of principal, all payments in
reimbursement of amounts paid under Letters of Credit, all payments in respect
of matured Acceptances, all payments of interest and all payments of Audit Fees,
to Lender at Lender's principal office in Philadelphia, Pennsylvania, not later
than 2:00 P.M. Philadelphia time on the applicable due date, in other funds
immediately available to Lender.
(B) Lender shall apply all payments and collections received by it
(including all funds in the Operating Account), as follows: first, to all costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses which Borrower is obligated to pay pursuant to the terms hereof);
second, to accrued and unpaid fees which Borrower is obligated to pay pursuant
to the terms hereof (other than attorneys' fees and expenses already paid
pursuant to "first" above); third, to accrued interest; fourth, to the unpaid
principal amount of the Demand, Line; fifth, to the amounts of unreimbursed
drawings and demands under Letters of Credit and the amount of matured
Acceptances not theretofore paid by Borrower; sixth, all other amounts which
shall have come due hereunder; and seventh, into the Operating Account.
SECTION 2.20. Payment on Non-Business Days. Whenever any payment to be
made hereunder or under the Demand Note shall be stated to be due on a day that
is not a Business Day, such payment shall be made on the next succeeding
Business Day, and, except as otherwise specifically provided herein, such
extension of time shall in such case be included in the computation of payment
of interest hereunder or under the Demand Note.
SECTION 2.21. Indemnification in Respect of Letters of Credit and
Acceptances. (A) In addition to amounts payable as elsewhere provided in this
Agreement, Borrower hereby agrees to protect, indemnify and save Lender harmless
from and against any and all claims, demands, liabilities, damages, losses,
costs, charges and expenses (including reasonable attorneys' fees) which Lender
may incur or be subject to as a direct or indirect consequence of (1) the
issuance of any Letter of Credit or the creation of any Acceptance, or (2) the
failure of Lender to honor a draft or demand under any Letter of Credit as a
result of any act or omission, whether rightful or wrongful, of any present or
future de jure or de facto government or governmental authority. Without
limiting the foregoing, Lender shall have no obligation to ascertain whether the
stated purpose of any requested Letter of Credit or Acceptance is permitted by
this Agreement and shall not be liable for Borrower's use of a Letter of Credit
or the
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proceeds of any Acceptance in violation of Borrower's covenants contained
herein.
(B) Borrower assumes all risks of the acts and omissions of, or
misuse of the Letters of Credit by, the respective beneficiaries of such Letters
of Credit. In furtherance and not in limitation of the foregoing, Lender shall
not be responsible for: (1) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application for and issuance of Letters of Credit, even if it should in
fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (2) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of
Credit or the rights or accounts thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (3) failure
of the beneficiary of any Letter of Credit to comply fully with conditions
required in order to obtain payment under any Letter of Credit; (iv) errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher;
(v) errors in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof; (vii) the misapplication
by the beneficiary of any Letter of Credit; or (viii) any consequences arising
from causes beyond the control of Lender. None of the above shall affect,
impair, or prevent the vesting of any of Lender's rights or powers hereunder.
(C) In furtherance and extension and not in limitation of the
specific provisions hereinabove set forth, any action taken or omitted by Lender
under or in connection with the Letters of Credit or the related certificates
including, without limitation, any action taken or omitted by Lender under
Section 2.10, if taken or omitted in good faith and substantially in accordance
with the terms thereof, shall not put Lender under any resulting liability to
Borrower in the absence of Lender's gross negligence or wilful misconduct.
SECTION 2.22. Late Charges. In the event that Borrower fails to make any
payment required hereunder within five days of the date first due, Borrower
shall pay to Lender a late charge equal to 1% of the amount of such payment as a
late charge.
SECTION 2.23. Default Interest. After the earlier of demand or an Event of
Default, the interest otherwise payable hereunder in effect for each Loan shall
increase immediately without notice and thereafter shall be payable at a rate of
3% per annum in excess of the applicable interest rate (said higher rate is
hereinafter called the "Default Rate"). Each time the Prime Rate shall change
the Default Rate shall change effective
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as of the date the Prime Rate changes. The Default Rate shall also change
with each change in the Applicable Margin.
SECTION 2.24. Reimbursement to Lender for Cost Increases Imposed by Law.
If any change in existing law, any new law, or any other factor having the force
of law shall impose or change any tax, reserve, insurance, special deposit or
similar requirements or charges with respect to funds obtained by Lender to make
any Advance or maintain amounts outstanding under the Demand Line, and the
result is to increase the cost to Lender of obtaining or maintaining such funds
or to reduce the return to Lender, then Lender shall so notify Borrower in
writing, certifying the amount of and reasons for such increased costs or
reduced return, and Borrower shall immediately pay to Lender an amount
sufficient to compensate Lender in full (on an after-tax basis) for such
increased costs or such reduced return.
SECTION 2.25. Reimbursement to Lender for Increased Costs Due to Capital
Adequacy Requirements. If any law or regulation or the interpretation thereof by
any court or administrative or governmental authority charged with the
administration thereof, or compliance by Lender or its holding company with any
request or directive (whether or not having the force of law) of any such
authority, applicable from time to time now or after the date hereof, shall (a)
impose, modify, deem applicable or result in the application of any capital
maintenance, capital ratio or similar requirement against loan commitments or
other facilities made by Lender or its holding company and the result thereof
shall be to impose upon Lender or its holding company a fee or a requirement to
increase any capital requirement applicable as a result of the making or
maintenance of the Demand Line (which imposition of or increase in capital
requirements may be determined by Lender's or its holding company's reasonable
allocation of the aggregate of such capital impositions or increases) , or (b)
subject Lender or its holding company to any tax, duty or other charge with
respect to the principal of the Demand Line, the Letter of Credit Liability or
the Acceptance Liability, the Demand Note which it holds, or its obligation to
advance under the Demand Line, or change the basis of taxation of payments to
Lender of the principal of or interest on the Demand Line or any other amounts
due under this Agreement in respect of the Demand Line or its obligation to
advance under Demand Line (except for changes in the rate of tax on the overall
net income of Lender imposed by any jurisdiction in which Lender or its holding
company is obligated to pay taxes), then, upon written demand by Lender,
Borrower shall pay to Lender from time to time as specified by Lender, such
additional amounts or fees as shall be sufficient to compensate Lender or its
holding company for such impositions of or increases in capital requirements or
taxes from the date of such change, together with interest on each such amount
from the date demanded until payment in full thereof at a rate equal to 3% in
excess of the Base Rate with respect to
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amounts or fees not paid when due. Upon the occurrence of any event referred to
above, a certificate setting forth in reasonable detail the amounts necessary to
compensate Lender or its holding company as a result of an imposition of or
increase in capital requirements or taxes submitted by Lender to Borrower shall
be conclusive, absent manifest error or bad faith, as to the amount thereof.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to the Initial Advance, Creation or
Issuance. The obligation of Lender to make the initial Advance, create the
initial Acceptance, or issue the initial Letter of Credit, whichever shall first
occur, is subject to the completion of Lender's due diligence investigation with
results satisfactory to Lender and the additional conditions precedent that
Lender shall have received, on or before the day on which such initial Advance,
creation or issuance is to occur all of the following, in form and substance
reasonably satisfactory to Lender:
(A) The Demand Note, duly executed by Borrower.
(B) The Security Agreement, together with such number of UCC-1
financing statements for filing under the Uniform Commercial Code of
all jurisdictions necessary or, in the opinion of Lender, desirable
to perfect the security interest created by the Security Agreement,
and each document required thereby, duly executed by Borrower.
(C) A favorable opinion of outside counsel for Borrower as to the
matters set forth in Schedule 3.01(C).
(D) A copy of the certificate of incorporation of Borrower
certified, within thirty days of the initial Advance, creation or
issuance, by the Secretary of State of the State of Delaware, and a
copy, certified in writing by the Secretary or an Assistant
Secretary of Borrower, of (1) Borrower's by-laws, and (2)
resolutions of the Board of Directors of Borrower evidencing
approval of the Loan Documents executed by Borrower and the other
matters contemplated hereby.
(E) A certificate of the Secretary or an Assistant Secretary of
Borrower as to the names and signatures of the officers of Borrower
authorized to sign the Loan Documents and the other documents or
certificates of Borrower to be executed and delivered pursuant
hereto.
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Lender may conclusively rely on, and shall be protected in acting
upon, such certificate until Lender shall receive a further
certificate by the Secretary or an Assistant Secretary of Borrower
amending the prior certificate.
(F) Certificates with respect to Borrower, dated within ten days
before such initial Advance, creation or issuance, issued by the
Secretary of State of each jurisdiction in which Borrower is
incorporated or does business, stating that Borrower is a
corporation duly incorporated or authorized to do business, as the
case may be, in good standing under the laws of such jurisdiction
and has paid all taxes and filed all reports.
(G) Payment by Borrower of all Audit Fees then due and fees and
expenses set forth in Section 7.05(A).
(H) Certificates of insurance issued in the name of Lender, showing
Lender as lender loss payee, evidencing insurance coverage as
required hereunder together with a copy of the underlying policy.
(I) Borrower's audited balance sheet and statements of operations
and cash flows for the Fiscal Year ending December 31, 1995.
(J) Borrower's unaudited balance sheet as of April 30, 1996 and
statements of operations and cash flows for the four months ending
April 30, 1996.
(K) Projections for Borrower's fiscal year ending December 31, 1996,
which shall be certified by the chief executive officer or chief
financial officer of Borrower as representing Borrower's reasonable
and accurate projections of anticipated results based upon all of
the information available to Borrower as to projections for time
periods after the date hereof.
(L) The results of searches of all relevant public records showing
no prior liens or judgments against Borrower or any of their assets,
except as disclosed on Schedule 4.08 hereto.
(M) A completed, executed Borrowing Base Certificate as of a date
satisfactory to Lender.
(N) Copies of all leases or other similar agreements relating to
facilities not owned by Borrower where the
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collateral granted under the Security Agreement (the "Collateral")
is located.
(0) [Deliberately Omitted]
(P) All necessary UCC termination statements to assure that Lender's
liens are first priority liens in accordance with the Security
Agreement.
(Q) The Surety Agreements duly executed by each of the Sluckers and
the Budilovs.
(R) The Collateral Pledge and Assignment Agreement duly executed by
each of the Sluckers.
(S) The Budilov Mortgage duly executed by each of the Budilovs.
(T) Personal financial statements of each of the Sluckers and each
of the Budilovs as of April 30, 1996, together with a certification
from each such Person that since April 30, 1996 through the Closing
Date, there have been no material adverse changes in such Person's
financial condition.
(U) The Subordination Agreements duly executed by each of the
Sluckers and each of the Budilovs.
(V) An Explanation and Waiver of Rights Regarding Confession of
Judgment duly executed by Borrower.
(W) An Explanation and Waiver of Rights Regarding Confession of
Judgment duly executed by each of the Sluckers and each of the
Budilovs.
(X) [Deliberately Omitted]
(Y) Copies of all license agreements and amendments thereto listed
on Schedule 4.15(D).
(Z) Written evidence that Borrower has engaged a third party payroll
service to process and pay Borrower's payroll taxes.
(AA) The Licensed Inventory Liquidation Agreement duly executed by
Borrower and each of the Sluckers and each of the Budilovs.
(AB) Such other documents as may be reasonably requested by Lender.
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SECTION 3.02. Conditions Precedent to All Advances, Creations and
Issuances. The obligation of Lender to make any Advance or to create any
Acceptance or to issue any Letter of Credit (including the initial Advance,
creation or issuance) is subject to the further conditions precedent that:
(A) The representations and warranties contained in Article IV
hereof shall be accurate on and as of the date of such disbursement, creation or
issuance as though made on and as of such date.
(B) No Default or Event of Default shall have occurred and be
continuing or will result from the making of such Advance or from such creation
or issuance.
(C) No material adverse change shall have occurred since December
31, 1995 in the financial condition, assets, nature of the assets, business,
operations or prospects of Borrower.
(D) Lender shall have received a certificate, executed by the, chief
executive officer or chief financial officer of Borrower to the foregoing
effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as follows:
SECTION 4.01. Existence. Borrower is a corporation duly incorporated,
validly existing and in good standing under the laws of its state of
incorporation. Borrower has all requisite power and authority, corporate and
otherwise, to conduct its business and to own its properties and is duly
qualified as a foreign corporation in good standing in all jurisdictions in
which its failure so to qualify could have a material adverse effect on its
financial condition or business.
SECTION 4.02. Authorization. The execution, delivery and performance by
Borrower of this Agreement, the Demand Note and the other Loan Documents have
been duly authorized by all necessary corporate action, and do not and will not
violate any provision of any law or regulation or of the charter or by-laws of
Borrower or result in a breach of or constitute a default under any instrument
or other agreement to which Borrower is a party or by which it or its properties
is bound or affected.
SECTION 4.03. Validity. This Agreement constitutes, and the Demand Note
and the other Loan Documents when duly executed and delivered will constitute,
valid and legally binding obligations of Borrower, enforceable in accordance
with their
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respective terms, except as such enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally.
SECTION 4.04. Financial Statements. The audited balance sheet and
statements of operations and cash flows of Borrower as of and for the year ended
December 31, 1995 and the unaudited balance sheet and statements of operations
and cash flows as of and for the four months ended April 30, 1996 are fair and
accurate, show all material liabilities, direct and contingent, and present
fairly Borrower's financial position and the results of operations and cash
flows at such dates and for the year ended on such date, all in accordance with
GAAP. Since December 31, 1995, there has been no material adverse change either
in such financial position or in such results of operations.
SECTION 4.05. Litigation. Except as disclosed in Exhibit 4.05, there are
no actions, suits or proceedings pending or, to the knowledge of Borrower,
threatened against Borrower or any of its properties before any court or
governmental department, commission, board, bureau, agency or instrumentality
(domestic or foreign) that, if determined adversely to Borrower, could have a
material adverse effect on its financial condition, assets, business, operations
or prospects.
SECTION 4.06. Credit Obligations and Contingent Liabilities. (A) All
Credit Obligations of Borrower are accurately described on Schedule 4.06 or in
the December 31, 1995 audited financial statements.
(B) There are no suretyship agreements, guarantees or other
contingent liabilities of Borrower that are not disclosed in the financial
statements mentioned in Section 4.04 or the notes thereto or on Schedule 4.06.
SECTION 4.07. Taxes. Borrower has filed all tax returns and reports, or
has timely filed reasonable requests for legally permissible extensions to file
such returns and reports, required to be filed before the date of this Agreement
and has paid all taxes, assessments and charges imposed upon it or its property,
or that it is required to withhold and pay over, to the extent that they were
required to be paid before the date of this Agreement except for taxes,
assessments and charges which Borrower disputes in good faith and for which
Borrower has reserved the amount so disputed on its books and records.
SECTION 4.08. Encumbrances. Except for liens disclosed on Schedule 4.08,
none of the properties or assets of Borrower is subject to any lien, encumbrance
or security interest.
SECTION 4.09. First Liens. Upon filing the financing statements delivered
to Lender pursuant to the Security
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Agreement, Lender's liens and security interests in the Collateral which can be
perfected by filing will immediately become duly perfected, first-priority liens
and security interests therein.
SECTION 4.10. Consents. No authorization, consent, approval, license,
exemption by or filing or registration with any court or governmental
department, commission, board (including the Board of Governors of the Federal
Reserve System), bureau, agency or instrumentality, domestic or foreign, is or
will be necessary for the valid execution, delivery or performance by Borrower
of this Agreement, the Demand Note or any of the other Loan Documents.
SECTION 4.11. ERISA. Borrower and the members of its Controlled Group
maintain only those Defined Benefit Pension Plans, Defined Contribution Plans
and other Plans listed on Schedule 4.11 and contribute to only those
Multiemployer Plans listed on Schedule 4.11. Except as disclosed on Schedule
4.11, to the best of Borrower's knowledge (1) all such Defined Benefit Pension
Plans and Defined Contribution Plans meet the minimum funding standards of ss.
412 of the Code, the Treasury regulations thereunder and ss. 302 of ERISA
without regard to any funding waiver; (2) no Prohibited Transaction has occurred
with respect to any Plan; (3) no Reportable Event has occurred with respect to
any Defined Benefit Pension Plan; (4) no Defined Benefit Pension Plan sponsored
by Borrower or any member of its Controlled Group has any Amount of Unfunded
Benefit Liabilities; (5) no trust was established in connection with any such
Defined Benefit Pension Plan pursuant to ss. 4049 of ERISA; and (6) no
liabilities (whether or not such liability is being litigated) have been
asserted against Borrower or any member of its Controlled Group in connection
with any such Defined Benefit Pension Plan by the PBGC or by a trustee appointed
pursuant to ss. 4042(b) or (c) of ERISA; and (7) no lien has been attached and
no person has threatened to attach a lien on any property of Borrower or any
member of its Controlled Group as a result of any failure to comply with the
Code or the Treasury regulations thereunder or ERISA. All Plans maintained by
Borrower or any member of its Controlled Group comply (A) in operation with the
requirements of the Code and the Treasury regulations thereunder and ERISA, and
(B) in form with those requirements of the Code and the Treasury regulations
thereunder and ERISA which must be met on the date hereof except to the extent
where a failure to comply will not have a material adverse effect on Borrower's
financial condition or operations.
SECTION 4.12. Ownership of Subsidiaries and other Persons. Borrower does
not have any Subsidiaries or own any other ownership interests in any other
Person.
SECTION 4.13. Margin Stock. Borrower does not engage in the business of
making loans for the purchase of Margin Stock.
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SECTION 4.14. Environmental Matters. Borrower is in possession of all
required permits and in compliance with Environmental Laws relating to the
discharge or release of liquids, gases or solids into the air, water and soil,
if the failure of Borrower to possess or so comply does have a material adverse
effect on the financial condition, assets, business, operations or prospects of
Borrower. Except as set forth in Schedule 4.14, Borrower does not refine,
process, generate, store, recycle, transport, dispose of, or release into the
environment any "hazardous substance" as that term is defined under ss. 101(14)
of CERCLA or any hazardous or toxic substances as those terms are defined by the
provisions of any Environmental Law except in compliance with such Environmental
Laws. Borrower has not received notice from any governmental agency that it is a
potentially responsible party in any proceeding under CERCLA or any similar
state or local environmental statute or regulation, or any notice of violation,
citation, complaint, request for information, order, directive, compliance
schedule, notice of claim, proceeding or litigation from any party concerning
such entity's compliance with any Environmental Law except as set forth on
Schedule 4.14.
SECTION 4.15. Patents, Trademarks. Copyrights and Licenses. (A) Schedule
4.15(A) contains a list of all patents, patent applications and patentable
inventions owned by Borrower and accurately states each United States and
foreign registration number of each registered patent owned by Borrower. Except
as disclosed in Schedule 4.15(A), Borrower has not granted a license in any such
patent to any other Person and no licensee has granted any sublicense or
assigned its rights under any such license.
(B) Schedule 4.15(B) contains a list of all, trademarks, trademark
applications, trademark registrations, tradenames, trade dress owned by Borrower
and accurately states each United States and foreign registration number of each
registered trademark owned by Borrower. Except as disclosed in Schedule 4.15(B),
Borrower has not granted a license in any such trademark to any other Person and
to Borrower's knowledge no licensee has granted any sublicense or assigned its
rights under any such license.
(C) Schedule 4.15(C) contains a list of copyrights, copyright
applications and copyright registrations owned by Borrower and accurately states
each United States and foreign registration number of each registered copyright
owned by Borrower. Except as disclosed in Schedule 4.15(C), Borrower has not
granted a license in any such copyright to any other Person and to Borrower's
knowledge no licensee has granted any sublicense or assigned its rights under
any such license.
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(D) Schedule 4.15(D) contains a complete list of all patents,
copyrights and trademarks licensed to Borrower and accurately states the
identity of each licensor and the term, geographic areas and product lines
covered by each such license. True and correct copies of all of the license
agreements relating to the patents, copyrights and trademarks identified on
Schedule 4.15(D), including all amendments thereto, have been furnished to
Lender. Neither the licensor to Borrower's knowledge nor the licensee has
violated or is otherwise in default under any material provision of such
license, and no condition exists that permits any licensor to terminate the
exclusive nature of any exclusive license.
(E) No claim of infringement or invalidity of any patent, trademark,
trade dress or copyright owned or licensed by Borrower is pending or, to the
best of Borrower's knowledge, threatened, and to the best of Borrower's
knowledge no such patent, trademark, trade dress or copyright has been or is
being infringed.
SECTION 4.16. Regulation U, Etc. Making Advances will not constitute a
violation of Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System. No Letter of Credit or any part of the proceeds of the Demand
Line or Acceptances will be used for any purpose which violates or is
inconsistent with the provisions of any of such regulations.
SECTION 4.17. Licenses, Permits, Etc. Borrower is in possession of and
operating in compliance with all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders required for the conduct
of its business, and all of them are valid and in full force and effect except
to the extent that the failure to possess any such franchise, grant,
authorization, license, permit, easement, consent, certificate or order does not
and does not have a material adverse effect on the financial condition, assets,
business, operations or prospects of Borrower.
SECTION 4.18. Compliance with Laws. Borrower is in compliance with all
laws, rules, regulations, and orders of all Federal, state and governmental
agencies and courts which are applicable to it, to the conduct of its business,
or to the ownership and use of properties except to the extent that the failure
to comply with such laws, rules, regulations and orders does not and will not
have a material adverse effect on the financial condition, assets, business,
operations or prospects of Borrower.
SECTION 4.19. Labor Matters. There are no existing or, to the best of
Borrower's knowledge, threatened or contemplated strikes, slowdowns, picketing
or work stoppages by any employees against Borrower, any lockouts by Borrower of
any of its
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employees, or any labor trouble or other occurrence, event or condition of a
similar character affecting, or which may materially affect, the financial
condition or results of operations of Borrower.
SECTION 4.20. Payroll Tax Service. Borrower has engaged a third party
payroll service to process and pay Borrower's payroll taxes.
SECTION 4.21. Full Disclosure. No representation or warranty by Borrower
in this Agreement or any of the other Loan Documents and no information in any
written statement, certificate, schedule or other document furnished or to be
furnished to Lender pursuant hereto, or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading. There is no fact known to
Borrower which Borrower has not disclosed to Lender in writing which materially
adversely affects, or, so far as Borrower can now foresee, may materially
adversely affect, the financial condition, assets, business, operations or
prospects of Borrower.
ARTICLE V
COVENANTS OF BORROWER
So long as any amount due Lender hereunder remains unpaid, or Lender
shall have any obligation hereunder, or any Letter of Credit or Acceptance
remains outstanding, Borrower agrees that:
SECTION 5.01. Use of Proceeds of Demand Line. Borrower will:
(A) use the proceeds of the Demand Line to (1) support its working
capital requirements and (2) finance up to $1,000,000 for the acquisition of
substantially all of the assets of Windsor Optical;
(B) use the Acceptances and Letters of Credit to support Borrower's
need for trade finance and working capital; and
(C) not use such proceeds, Letters of Credit or Acceptances for the
benefit of any person other than Borrower.
SECTION 5.02. Financial Information. (A) Borrower will furnish to Lender
(1) balance sheets and statements of operations and cash flows of Borrower
within 30 days after the close of each month, (2) balance sheets and statements
of operations and cash
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flows of Borrower within 120 days after the close of Fiscal Year, (3) on the
last Business Day of each week or for such other day that Lender may require, a
completed executed Borrowing Base Certificate as of such day, executed on behalf
of Borrower by the chief executive officer or chief financial officer of
Borrower, (4) within 20 days after the end of each month, (a) an aging of
Borrower's Accounts, (b) an Account status report and (c) a report concerning
Borrower's Inventory, each in such detail as Lender may reasonably require, (5)
on or before the close of each Fiscal Year, an annual budget and projections for
Borrower's performance for the subsequent Fiscal Year and (6) such other
information as Lender may reasonably require. All financial statements will be
prepared in accordance with GAAP and shall be certified by the chief executive
officer or chief financial officer of Borrower.
(B) The annual financial statements of Borrower shall be audited by
an independent accounting firm satisfactory to Lender, whose report thereon
shall be unqualified, and shall be accompanied by (1) a copy of the management
letter furnished to Borrower by such auditors in connection with their audits,
and (2) a certificate by such auditors that, in the course of their audits of
such financial statements, such auditors did not become aware that a Default or
an Event of Default had occurred and is continuing on the date of the annual
financial statements (or if such statement cannot be made, a description of any
Default or Event of Default of which such auditors shall have become aware).
(C) Each monthly and annual statement delivered to Lender pursuant
to Section 3.01 and this Section 5.02 will be accompanied by a certificate of
the chief executive officer or chief financial officer of Borrower stating
whether such officer has any knowledge that a Default or an Event of Default has
occurred and, if so, a description thereof and what action Borrower is taking or
proposes to take with respect thereto.
SECTION 5.03. Insurance. Borrower shall: (A) keep itself, the Collateral
and all of its other property insured against fire (with all-risk coverage and,
if required by the location of Borrower's premises on a flood plain, flood
coverage), liability (including product liability) and all other hazards and all
such insurance shall be in form and in amounts and issued by such insurers as
are reasonably satisfactory to Lender (casualty insurance shall at all times be
in an amount equal to the replacement value of the property insured) ; (B) cause
Lender's security interests to be endorsed on all policies of insurance thereon
in such manner that all payments for losses will be paid to Lender as lender
loss payee or additional insured; (C) furnish Lender with evidence of such
insurance and endorsements; and (D) keep such insurance in full force and effect
at all times. Borrower assigns to Lender all right to receive the proceeds of
insurance covering the Collateral, directs any insurer to pay all
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such proceeds directly to Lender and authorizes Lender to endorse in the name
of Borrower any draft for such proceeds. Any amounts received or collected by
Lender in its capacity as such attorney-in-fact shall be deposited in the
Operating Account, provided that if a Default or an Event of Default has
occurred and is continuing Lender may apply such proceeds as provided in Section
2.19. All insurance policies will name Lender as lender loss payee or an
additional insured, as the case may be, and contain provisions (X) that, with
respect to Lender, the insurance policies may be canceled only after not less
than thirty (30) days notice of intent to cancel provided to Lender, and (Y)
stating "[t]his policy shall not be invalidated by any act, neglect, breach of
warranty or misrepresentation of the primary insured." Lender shall have the
right at any time and from time to time, with notice to Borrower, to obtain
insurance which Lender may reasonably require or as otherwise required by any of
the Loan Documents covering any of the Collateral if Borrower fails to do so.
Borrower will reimburse Lender, on demand, with interest thereon at the Default
Rate payable hereunder, for any payment Lender makes, or any expense Lender
incurs, under this authorization.
SECTION 5.04. Taxes. Borrower will pay when due all taxes, assessments and
charges imposed upon it or its property or that it is required to withhold and
pay over, except where contested in good faith and where appropriate reserves
have been established.
SECTION 5.05. Indebtedness. Borrower shall not create, incur, assume or
suffer to exist any liability on account of any Credit Obligation other than (1)
liabilities under this Agreement, the Demand Note and the other Loan Documents;
(2) Credit Obligations in existence on the date of this Agreement and described
in Schedule 4.06 (but not any increase, renewal or extension thereof); (3)
liabilities secured by liens or security interests permitted by Section 5.06,
provided that Borrower shall not create, incur or assume more than $200,000 of
such liabilities in any Fiscal Year; (4) loans permitted under the Subordination
Agreements; and (5) liabilities secured by liens or security interests permitted
by Schedule 4.08 (but not any increase, renewal or extension thereof).
SECTION 5.06. Encumbrances. (A) Borrower will not create, incur, assume or
suffer to exist, any mortgage, pledge, judgment, lien or other encumbrance of
any kind (including the interest of the lessor under any Capital Lease) upon, or
any security interest in, any of its property or assets except for (1) liens for
taxes (a) not yet delinquent or (b) being contested in good faith and by
appropriate proceedings and where appropriate reserves have been established,
(2) liens in connection with workers' compensation, unemployment insurance or
other social security obligations, (3) mechanics', materialmen's, landlords',
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carriers', or other similar liens arising in the ordinary course of
business with respect to obligations that are not due or that are being
contested in good faith, (4) purchase money liens or security interests on any
property hereafter acquired by Borrower, or a lien incurred in connection with a
Capital Lease; provided that the Credit Obligations secured by such liens shall
not exceed $500,000 at any time outstanding in the aggregate, (5) the
encumbrances described in Schedule 4.08 and (6) liens in favor of Lender.
(B) Borrower will not agree with any other Person to restrict its
ability to grant mortgages, pledges, liens, or other encumbrances upon, or
security interests in, any of its property or assets to Lender.
SECTION 5.07. Compliance with Laws. Borrower will comply with all laws and
regulations applicable to it in the operation of its business if the failure to
so comply could have a material adverse effect on Borrower's financial
condition, assets, business, operations or prospects.
SECTION 5.08. Inspection by Lender. Upon reasonable notice and at
reasonable times, Borrower will permit representatives of Lender to (1) inspect
the property and books and records of Borrower and to make extracts therefrom;
and (2) perform periodic collateral audits not more than twice per any year,
provided that if a Default or Event of Default shall occur and be continuing,
Borrower will permit representatives of Lender to make such inspections and
perform such audits as frequently as Lender desires, without notice to Borrower.
SECTION 5.09. Reports. Borrower will furnish to Lender:
(A) as soon as possible after Borrower becomes aware of the
occurrence of any Default or Event of Default, a written statement executed on
behalf of Borrower by the chief executive or chief financial officer of
Borrower setting forth details of such Default or Event of Default, stating
whether or not the same is continuing and, if so, the action that Borrower
proposes to take with respect thereto;
(B) within three Business Days after receiving notice thereof,
notice in writing of all actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency or instrumentality
that, if determined adversely to Borrower, could have a material adverse effect
on the financial condition, assets, business, operations or prospects of
Borrower;
(C) as soon as practicable after becoming aware of the occurrence of
a change in the business, properties, operations, financial condition or
prospects of Borrower that could be
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materially adverse, a statement setting forth details of such material adverse
change and the action that Borrower proposes to take with respect thereto;
(D) written notice promptly after the death or incapacity of either
of the Budilovs or the Sluckers or the termination of Borrower's chief executive
officer or chief financial officer;
(E) promptly after the occurrence thereof, written notice of the
cancellation or discontinuance of one or more licenses in which Borrower is
licensee; and
(G) such other information respecting the business, properties,
condition and operations of Borrower as Lender may at any time and from time to
time reasonably request be furnished to it.
SECTION 5.10. ERISA. (A) Borrower and each member of its Controlled Group
will comply in all material respects with the provisions of ERISA and the Code
and the regulations thereunder with respect to any Plan, including the timely
filing of required annual reports and the payment of PBGC premiums.
(B) Borrower will cause to be made, when due, all contributions
required to avoid any accumulated funding deficiency (as defined in ss.
412(a) of the Code and the regulations thereunder and ss. 302(a) of ERISA), with
respect to any pension plan (as defined in ss. 3(2) of ERISA) which is subject
to Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code and the
regulations thereunder and which is maintained by Borrower or any member of its
Controlled Group.
(C) Borrower will promptly notify Lender of the adoption of any Plan
or any material obligation to contribute to any Multiemployer Plan by Borrower
or any member of its Controlled Group.
(D) Borrower will not withdraw, or permit any member of its
Controlled Group to withdraw, from any Multiemployer Plan to which any of them
now or hereafter contribute if the Withdrawal Liability which would thereupon be
incurred would have a material adverse effect directly or indirectly on the
financial condition of Borrower.
SECTION 5.11. Environmental Matters. (A) Borrower will obtain and comply
with all required permits, licenses, registrations, and approvals relating to
the discharge or release of liquids, gases or solids to the environment if the
failure to obtain and so comply could have a material adverse effect on the
financial condition, assets, business, operations or prospects of Borrower. To
the extent that such are applicable to the
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operation of its business, Borrower will comply with all laws, rules,
regulations and governmental orders and directives relating to the generation,
treatment, storage, transportation, disposal and release into the environment
and cleanup of any "hazardous substance" as that term is defined under Section
101(14) of CERCLA, or any hazardous or toxic substances as defined by the
provisions of any Environmental Law at all premises owned or operated by
Borrower if the failure to so comply could have a material adverse effect on the
financial condition, assets, business, operations or prospects of Borrower.
(B) Borrower will notify Lender in writing of the receipt by it of
(1) any notice from any governmental agency that it is a potentially responsible
party in any proceeding under CERCLA or any similar state or local environmental
statute or regulation, (2) any notice of any claim, proceeding, litigation,
order, directive, citation, or request for information concerning its compliance
with the Environmental Laws, (3) notice of any alleged violation of the
Environmental Laws, or (4) any information concerning any potentially material
adverse environmental condition on, above, or beneath its premises.
SECTION 5.12. Corporate Existence. Borrower will preserve and maintain its
corporate existence and good standing in the jurisdiction of its incorporation,
and qualify and remain qualified as a foreign corporation in each jurisdiction
in which such qualification is required and failure to maintain its corporate
existence and good standing would have a material adverse effect on Borrower's
financial condition or business.
SECTION 5.13. Regulation U. Borrower will not use the proceeds of the
Demand Line, Letter of Credit or Acceptance to purchase or carry any Margin
Stock, or engage in the business of making loans for the purchase of Margin
Stock.
SECTION 5.14. Disposal of Assets. Except for sales of Inventory in the
ordinary course of business and of obsolete equipment, Borrower will not
dispose of assets.
SECTION 5.15. Guarantees and other Contingent Liabilities. Borrower will
not become liable on the obligation of anyone except by endorsement of
negotiable instruments for deposit or collection in the usual course of
business. Borrower will not incur or remain liable in respect of any other
contingent liability except for contingent liabilities in connection with
standard warranties and sales programs of Borrower offered in the ordinary
course of business.
SECTION 5.16. Transactions with Affiliates. Borrower shall not use any of
the proceeds of the Demand Line or any Letter of Credit or Acceptance for the
benefit of any Affiliate of Borrower unless otherwise permitted by this
Agreement and shall not engage
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in any transaction with any Affiliate except on terms no less favorable to
Borrower than are available from a third party. Nothing in this Section 5.16
shall be construed to prohibit Borrower from paying reasonable salaries or
consulting fees to Rudy Slucker or Barry Budilov in the ordinary course
Borrower's business pursuant to pre-existing employment and/or consulting
contracts between Borrower and Rudy Slucker and Barry Budilov.
SECTION 5.17. Maintenance of Property. Borrower will maintain all of its
property in good condition and repair (ordinary wear and tear excepted) and keep
any patents, trademarks, copyrights, licenses, and permits it may have in full
force and effect, provided that Borrower may, upon prior written notice to
Lender, terminate any license that Borrower deems desirable to terminate in the
exercise of Borrower's reasonable business judgment.
SECTION 5.18. Merger; Corporate Structure; Acquisitions. Borrower will not
enter into any merger or consolidation, change its corporate structure or the
nature or character of its stock or, except for the acquisition of the assets of
Windsor Optical pursuant to and in accordance with the terms of a purchase
agreement approved by Lender, acquire all or substantially all of the assets of
another Person. Borrower shall not create or acquire any Subsidiary.
SECTION 5.19. Loans and Investments. Borrower shall not make any loan or
investment except investments in (a) Cash Equivalents, (b) obligations of
Lender, or (c) bank deposits as otherwise permitted hereby.
SECTION 5.20. Dividends and Distributions. Borrower will not declare or
pay any dividend or distribution on, or redeem, purchase or otherwise acquire
for value, any of its capital stock.
SECTION 5.21. Payroll Tax Service. Borrower shall at all times retain the
services of a third party payroll tax service reasonably satisfactory to Lender
to process and pay Borrower's payroll taxes.
SECTION 5.22. Post-Closing Requirements. Within 10 days of the date of
this Agreement, Borrower shall deliver to Lender a (A) Pledged Collateral
Account Agreement substantially in the form of Exhibit 5.22 and (B) lien waivers
executed by the landlord of each facility not owned by Borrower where the
Collateral is located.
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ARTICLE VI
DEFAULT
SECTION 6.01. Events of Default. Each of the following shall be an Event
of Default:
(A) If Borrower shall fail to pay upon demand any principal of the
Demand Line, any Letter of Credit Liability or any Acceptance Liability and such
failure shall continue for a period of 45 days from the date of demand.
(B) If Borrower shall fail to pay any interest, Audit Fee, or any
other amount owing hereunder, under the Demand Note or under any of the other
Loan Documents when due.
(C) If any representation or warranty made in this Agreement, any of
the other Loan Documents, or any certificate, agreement, instrument, statement
or report contemplated hereby or made or delivered pursuant hereto or in
connection herewith shall prove to have been incorrect in any material respect
when made or deemed made.
(D) If Borrower shall fail to make any payment owing by it under a
Credit Obligation of more than $25,000, or any interest or premium thereon, when
due, whether such Credit Obligation shall become due by scheduled maturity, by
required prepayment, by acceleration, by demand or otherwise, or shall fail to
perform any term, covenant or agreement on its part to be performed under any
agreement or instrument evidencing or securing or relating to any such Credit
Obligation when required to be performed, if the effect of such failure is to
accelerate, or to permit the holder or holders of such Credit Obligation to
accelerate, the maturity of such Credit Obligation, whether or not such
failure to perform shall be waived by the holder or holders of such Credit
Obligation, unless such waiver has the effect of terminating the right of such
holder or holders to accelerate the maturity of such Credit Obligation as a
result of such failure.
(E) If Borrower shall be adjudicated a bankrupt or insolvent or the
equivalent under any law or admit in writing its inability to pay its debts as
they mature, or make an assignment for the benefit of its creditors; or shall
apply for or consent to the appointment of any receiver, trustee, or similar
officer or the equivalent under any law for such applicant or for all or any
substantial part of its property; or if any such receiver, trustee or similar
officer or the equivalent under any law shall be appointed without the
application or consent of Borrower and shall continue undischarged for a period
of 60 days; or if Borrower shall institute (by petition, application, answer,
consent or otherwise) any bankruptcy, insolvency, reorganization,
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arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or if any such
proceeding shall be instituted (by petition, application or otherwise) against
Borrower and an order for relief or similar remedy shall be entered in such
proceeding or such proceeding shall remain undismissed for a period of 60 days;
or if any writ, warrant of attachment or execution or similar process shall be
issued or levied against any substantial portion of the properties of Borrower
and such writ, or similar process shall not be released, vacated or fully bonded
within 60 days after its issue or levy.
(F) If (1) there occurs any Reportable Event, or any failure of
compliance required by Section 5.10, that creates a reasonable possibility of
the termination of any Defined Benefit Pension Plan maintained by Borrower or
any member of its Controlled Group, or of the appointment by the appropriate
United States District Court of a trustee to administer any such Plan, or (2)
Borrower or any member of its Controlled Group withdraws from any Defined
Benefit Pension Plan for which it was a substantial employer within the meaning
of ss. 4063(b) of ERISA or from any Multiemployer Plan, or (3) the plan
administrator of any Defined Benefit Pension Plan maintained by Borrower or any
member of its Controlled Group files with the PBGC a notice of intention to
terminate such Plan in a "distress termination" (as defined in ss. 404l(c) of
ERISA), or (4) the PBGC institutes proceedings to terminate any such Plan or to
appoint a trustee to administer any such Plan and such proceedings remain
undismissed or unstayed for 3 Business Days; and if, in any of the cases
described in the foregoing clauses (1) through (4), Lender further determines
that the Amount of Unfunded Benefit Liabilities resulting upon termination of
such Plan (or resulting from the imposition of Withdrawal Liability) would have
a material adverse effect on the business, properties, operations, or condition
(financial or otherwise) of Borrower, or if a lien against the assets of
Borrower or any member of its Controlled Group were to result under ERISA.
(G) If the Sluckers and the Budilovs together cease to control at
least 51% of the voting shares of Borrower or if either of the Sluckers or
either of the Budilovs die or are subject to an event of the type described in
Section 6.01(E).
(H) If Barry Budilov ceases to be, and actively perform the
functions of, the chief executive officer of Borrower, or if Rudy Sluckers
ceases to be, and actively perform the functions of, the Chairman of Borrower.
(I) If one or more judgments shall be entered against Borrower
aggregating $25,000 or more and the same shall not have been satisfied, or
stayed or bonded pending appeal, within ten days after the entry thereof.
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(J) If Borrower shall contest the validity or binding effect of this
Agreement, the Demand Note or any of the other Loan Documents, or if there shall
occur a judicial determination that any of the Loan Documents is not valid and
binding upon Borrower.
(K) If Borrower shall default, fail to perform or observe any term,
covenant or agreement contained in this Agreement (other than those referred to
in subsection (A) or (B)) or in any of the other Loan Documents on its part to
be performed or observed and shall continue for 15 days from the earlier of (1)
Borrower's knowledge of such failure or (2) written notice of such failure from
Lender to Borrower.
(L) If a default or an event of default shall occur under any other
Loan Document, which is not cured within the applicable grace period, if any.
(M) If there shall occur any material adverse change in the
financial condition, properties, business, operations or prospects of Borrower.
SECTION 6.02. Termination of Commitments; Acceleration. If any Event of
Default other than those described in Section 6.01(E) hereof shall occur and be
continuing, then upon notice by Lender to Borrower, or if any Event of Default
described in Section 6.01(E) shall occur, then automatically, (A) the Demand
Line shall terminate, whereupon the obligations of Lender to make Advances shall
forthwith terminate, (B) Lender shall not have any further obligation to issue
Letters of Credit, and Lender shall not have any further obligation to create
Acceptances, (C) Borrower shall pledge cash collateral and deposit in the
Operating Account an amount equal to or greater than the amount of any Letter of
Credit Liability and Acceptance Liability, (D) the entire unpaid principal
amount of the Demand Line, the entire amount of unreimbursed drawings under
Letters of Credit, the entire amount of all unmatured Acceptances, all interest
accrued and unpaid thereon and all other amounts payable hereunder and under the
Demand Note and the other Loan Documents shall become immediately due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by Borrower and (E) Lender may exercise all
rights and remedies provided hereby, by any of the other Loan Documents and by
applicable law.
The specification of Events of Default shall not be construed or interpreted and
is not intended to indicate that the credit facility made available hereby is a
term obligation. Rather, the credit facility contemplated hereby is a Demand
Line and Lender may at any time, without giving any reason therefor and whether
or not a Default or Event of Default exists, demand payment of
-36-
<PAGE>
all obligations of Borrower to Lender hereunder and under the other Loan
Documents.
SECTION 6.03. Warrant of Attorney. BORROWER HEREBY AUTHORIZES AND
EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD UPON THE OCCURRENCE OF ANY EVENT OF
DEFAULT TO APPEAR FOR AND CONFESS JUDGMENT AGAINST BORROWER FOR SUCH SUMS AS
SHALL HAVE BECOME DUE UNDER THE DEMAND NOTE OR THIS LOAN AGREEMENT, IN EITHER
CASE WITH OR WITHOUT DECLARATION, WITH COSTS OF SUIT, WITHOUT STAY OF EXECUTION
AND WITH THE GREATER OF FIVE PERCENT (5%) OF SUCH SUMS OR $3,000 ADDED AS A
REASONABLE ATTORNEY'S FEE FOR COLLECTION. BORROWER HEREBY WAIVES THE RIGHT OF
INQUISITION ON ANY REAL ESTATE LEVIED ON, VOLUNTARILY CONDEMNS THE SAME,
AUTHORIZES THE PROTHONOTARY OR CLERK TO ENTER UPON THE WRIT OF EXECUTION SAID
VOLUNTARY CONDEMNATION AND AGREES THAT SAID REAL ESTATE MAY BE SOLD ON A WRIT OF
EXECUTION; AND ALSO WAIVES AND RELEASES ALL RELIEF FROM ANY AND ALL
APPRAISEMENT, STAY OR EXEMPTION LAW OF ANY STATE NOW IN FORCE OR HEREAFTER
ENACTED. BORROWER ALSO HEREBY WAIVES ITS RIGHT TO OBJECT TO AND RELEASES ALL
PROCEDURAL ERRORS IN SUCH PROCEEDINGS. IF A COPY OF THIS AGREEMENT, VERIFIED BY
AFFIDAVIT LENDER OR SOMEONE ON BEHALF OF LENDER, SHALL HAVE BEEN FILED IN SUCH
ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL AGREEMENT AS A WARRANT OF
ATTORNEY. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST
BORROWER SHALL NOT BE EXHAUSTED BY THE INITIAL EXERCISE THEREOF, AND THE SAME
MAY BE EXERCISED FROM TIME TO TIME AND AS OFTEN AS LENDER SHALL DEEM NECESSARY
OR DESIRABLE AND THIS AGREEMENT SHALL BE A SUFFICIENT WARRANT.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. No Waiver; Cumulative Remedies. No failure on the part of
Lender to exercise, and no delay in exercising, any right, power, or remedy
under any Loan Documents shall operate as a waiver thereof; nor shall any single
or partial exercise of any right under any Loan Documents preclude any other or
further exercise thereof or the exercise of any other right. The remedies
provided in the Loan Documents are cumulative and not exclusive of any remedies
provided by law.
SECTION 7.02. Amendments. No amendment, modification, termination, or
waiver of any provision of any Loan Document, nor consent to any departure by
Borrower from any Loan Document, shall in any event be effective unless the
same shall be in writing and signed by Lender, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
-37-
<PAGE>
SECTION 7.03. Notices. Unless this Agreement specifically provides
otherwise, all notices, requests, demands and other communications that this
Agreement requires or permits any party to give to any other party shall be in
writing (including telecopy) and shall be given (A) if to Lender, at:
CoreStates Bank, N.A.
Widener Building - 4th Floor
F.C. 1-8-4-18
1339 Chestnut Street
Philadelphia, PA 19107
Attention: James A. Kelly, Vice President
Telecopier: (215)973-6680
and (B) if to Borrower at:
Diplomat Ambassador, Inc.
1010 Arch Street
Philadelphia, PA 19107
Attention: Barry Budilov, President
Telecopier: (215)925-0204
Any party may specify a different address or telecopy number in a notice to each
other party complying with the terms of this Section. Unless this Agreement
specifically provides otherwise, all notices, requests, demands and other
communications provided for hereunder shall be effective (A) if given by mail,
three Business Days after it is mailed, (B) if sent by overnight courier
service, on the Business Day after it is sent, (C) if given by telecopy, when
such telecopy is transmitted to the aforesaid telecopy number and the
appropriate confirmation of receipt is received by the sender or (D) if given by
any other means, when delivered at the aforesaid address. Notwithstanding the
the foregoing, notices from Borrower to Lender pursuant to any of the provisions
of Article II shall not be effective until received by Lender. Lender shall be
entitled to rely on any notice, oral or written, received by it from Borrower,
and in the event of conflicting notices received by Lender from Borrower, Lender
shall be entitled to rely on any notice received from Borrower as if such notice
were the only notice received by Lender.
SECTION 7.05. Costs and Expenses. Borrower agrees to pay on demand all
costs and expenses of Lender (including the reasonable fees and out-of-pocket
expenses of counsel for Lender) in connection with (A) the preparation,
printing, execution and delivery of this Agreement, (B) any waiver under or
amendment of, this Agreement, the Demand Note, the other Loan Documents and the
other instruments and documents to be delivered hereunder, and (C) the
enforcement of this Agreement, the Demand Note, the other
-38-
<PAGE>
Loan Documents and the other instruments and documents to be delivered
hereunder.
SECTION 7.06. Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
SECTION 7.07. Binding Effect. This Agreement shall become effective when
it shall have been executed by Borrower and Lender, and it shall thereafter be
binding upon and inure to the benefit of Borrower and Lender.
SECTION 7.08. Governing Law. This Agreement, the Demand Note and the other
Loan Documents shall be governed in all respects by the law of the Commonwealth
of Pennsylvania and for all purposes shall be construed in accordance with the
law of the Commonwealth of Pennsylvania.
SECTION 7.09. Headings. Article and Section headings used in this
Agreement are for convenience only and shall not affect the construction of this
Agreement.
SECTION 7.10. Assignments. (A) The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that Borrower may not assign or otherwise
transfer any of its rights or obligations under this Agreement without the prior
written consent of Lender.
(B) Without otherwise limiting Lender's right to grant
participations or assign any of its rights or obligations hereunder, Lender may
at any time assign all or any portion of its rights under this Agreement and the
Demand Note to a Federal Reserve Bank. No such assignment shall release the
transferor bank from its obligations hereunder.
SECTION 7.11. Additional Indemnification of Lender. Borrower hereby agrees
to defend Lender and its directors, officers, agents, employees and counsel
from, and hold each of them harmless against, any and all losses, liabilities,
claims, damages, interest, judgments, costs and expenses, including reasonable
attorneys' fees, incurred by any of them arising out of or in connection (A)
with this Agreement, or Lender's financing of Borrower's business and
operations, or (B) any claim under any of the Environmental Laws relating to any
violation or alleged violation thereof by Borrower or the presence on or
disposal from any of its properties of any hazardous or toxic substance referred
to in Section 5.11. All obligations provided for in this Section shall survive
any termination of this Agreement, the Demand Note, the repayment of
indebtedness
-39-
<PAGE>
hereunder, or any action taken by Lender in the enforcement of its rights and
remedies hereunder or thereunder.
SECTION 7.12. Consent to Jurisdiction and Service of Process; Waiver of
Jury Trial; Limitation on Damages. (A) Borrower irrevocably appoints its chief
executive officer and chief financial officer as its attorneys upon whom may be
served, by regular or certified mail at Borrower's address set forth in this
Agreement, any notice, process or pleading in any action or proceeding against
it arising out of or in connection with this Agreement or any of the other Loan
Documents. Borrower hereby consents that any action or proceeding against it may
be commenced and maintained in any court within the Commonwealth of Pennsylvania
or in the United States District Court for any District of Pennsylvania by
service of process on any such officer. Borrower further agrees that such courts
of the Commonwealth of Pennsylvania and the United States District Court for any
District of Pennsylvania shall have jurisdiction with respect to the subject
matter hereof and the person of Borrower. This paragraph shall not restrict
Lender from bringing a suit against Borrower is any other court or jurisdiction.
Notwithstanding the foregoing, Borrower agrees that any action brought by it
against Lender shall be commenced and maintained only in a court in the federal
judicial district or county in which Lender has its principal office in
Pennsylvania.
(B) EACH PARTY TO THIS AGREEMENT AGREES THAT ANY SUIT, ACTION OR
PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT OR INSTITUTED BY ANY PARTY
HERETO OR ANY SUCCESSOR OR ASSIGN OF ANY PARTY, ON OR WITH RESPECT TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE DEALINGS OF THE PARTIES WITH
RESPECT HERETO, OR THERETO, SHALL BE TRIED ONLY BY A COURT AND NOT BY A JURY,
AND EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING.
(C) EACH PARTY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER, IN
ANY SUCH SUIT, ACTION OR PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES.
(D) BORROWER ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A SPECIFIC
AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT LENDER WOULD NOT EXTEND CREDIT TO
BORROWER IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS
AGREEMENT.
-40-
<PAGE>
SECTION 6.l3. Non-Merger of Remedies. It is the intention of the parties
hereto that the covenants and obligations of the Borrower and the rights and
remedies of Lender hereunder and under any other Loan Document shall not merge
with or be extinguished by the entry of judgment hereunder or thereunder, and
such covenants, obligations, rights and remedies shall survive any entry of
judgment until payment in full of all obligations of Borrower to Lender. All
obligations under the Loan Documents shall continue to apply with respect to and
during the collection of amounts due under the Loan Documents or the proof and
allowability of any claim arising under this Agreement or any other Loan
Document, whether in bankruptcy or receivership proceedings or otherwise, and in
any workout, restructuring or in connection with the protection, preservation,
exercise or enforcement of any of the terms of this Agreement or of any rights
under this Agreement or under any other Loan Document or in connection with any
foreclosure, collection or bankruptcy proceedings. Without limiting the
generality of the foregoing, the post-judgment interest rate shall be the
interest rate provided herein.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
day and year first above written.
(Corporate Seal) DIPLOMAT AMBASSADOR, INC.
Attest:
By /s/ Barry Budilov
--------------------------------
/s/ R. Slucker
- ------------------------------ Title: President
Secretary
CORESTATES BANK, N.A.,
By /s/ James A. Kelly, VP
-------------------------------
Title: Vice President
-41-
<PAGE>
CORPORATE ACKNOWLEDGEMENT
COMMONWEALTH OF PENNSYLVANIA :
: SS
COUNTY OF PHILADELPHIA :
On this, the 7th day of June, 1996, before me, the undersigned officer,
personally appeared Barry Budilov known to me (or satisfactorily proven) to be
the President of Diplomat Ambassador, Inc., a Delaware corporation, and that he
as such President being authorized to do so, executed the foregoing Loan
Agreement and acknowledged that he executed the same for the purposes therein
contained by signing the name of the corporation by himself as President.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Jean A. Hall
-------------------------------
NOTARY PUBLIC
My Commission Expires:
------------------------------------
NOTARIAL SEAL
JEAN A. HALL, Notary Public
City of Philadelphia, Phila. County
My Commission Expires Jan. 15, 2000
------------------------------------
-42-
<PAGE>
SCHEDULE 3.01(c)
Matters To Be Covered in Opinion of Counsel for
Diplomat Ambassador, Inc. ("Borrower")
Rudy Slucker and Linda Slucker (together, the "Sluckers")
and Barry Budilov and Carole Budilov (together, the "Budilovs"; Borrower, the
Sluckers and the Budilovs, each an "Obligor" and collectively "Obligors")
1. Borrower is a corporation duly organized, validly existing and in good
standing under the laws of Delaware. The failure of Borrower to be qualified in
any other jurisdiction will not adversely affect its business or operations or
its ability to perform its obligations under the Loan Documents, as that term is
defined in the Loan Agreement.
2. Borrower has the corporate power and authority to own its assets and to
transact the business in which it is now engaged and to enter into, deliver and
perform its obligations under each of the Loan Documents to be executed,
delivered and performed by it. The execution, delivery and performance of the
Loan Documents has been authorized by all requisite corporate action on the part
of Borrower.
3. Each Obligor has duly executed and delivered the Loan Documents to
which it is a party.
4. The Loan Documents are, or when executed and delivered by each Obligor
will be, the legal, valid and binding obligations of each Obligor, enforceable
against each Obligor in accordance with their respective terms, except as may be
limited by general principles of equity and by bankruptcy, insolvency
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally.
5. No authorization, approval or consent of, or filing or registration
with, any governmental or regulatory body is required in connection with the
execution, delivery and performance by any Obligor, or the validity or
enforceability, of the Loan Documents.
6. Neither the execution and delivery by Borrower of the Loan Documents
nor the performance and observance by any of them of its obligations thereunder,
will conflict with, or result in any violation or breach of or constitute a
default under (i) its Articles of Incorporation or By-Laws, (ii) any existing
law, statute or governmental regulation applicable to Borrower or (iii) any
judgment, order, decree, writ or injunction of any court, arbitrator or
governmental department, commission, agency or instrumentality or any indenture,
contract, guaranty or other agreement or instrument known to us to which
Borrower is a party or by which it or its properties may be bound or affected.
<PAGE>
7. We know of no action, suit, proceeding or investigation at law or in
equity, before any court, public board or body, pending or, to the best of our
knowledge, threatened against or affecting any Obligor, wherein an unfavorable
decision, ruling or finding would result, either individually or collectively,
in any material adverse change in the business, property, operation or condition
of any Obligor or adversely affect the transactions contemplated by the Loan
Documents or the validity or enforceability of any of the Loan Documents.
8. The Security Agreement is sufficient to create in favor of Lender a
security interest under the Uniform Commercial Code (the "UCC") in Borrower's
inventory, equipment, accounts, general intangibles (as those terms are defined
in the UCC).
9. Upon the filing of UCC-1 Financing Statements with the Office of the
Secretary of the Commonwealth, the Prothonotary of Philadelphia County, and the
Recorder of Philadelphia County (the "Filing Offices"), the security interest
referred to in paragraph 8 will be perfected, to the extent a security interest
in the property described in paragraph 8 can be perfected by filing financing
statements under the UCC.
<PAGE>
SCHEDULE 4.05 - LITIGATION
-None
<PAGE>
SCHEDULE 4.06 - CREDIT OBLIGATIONS
Capital Leases:
Leases Type of Equipment
- ---------------------------------------------------------
Funding Services Computer Upgrade
Funding Services Panasonic Telephone System
Funding Services Paging System
Funding Services Laptop Computers
Funding Services Laptop Computers
Funding Services Show Booth
<PAGE>
Schedule 4.08 - Encumbrances
<TABLE>
<CAPTION>
Filing Date/
Jurisdiction: Debtor: Secured Party: Filing No.: Collateral:
- ------------- ------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Pennsylvania
Sec. of State: Chanuk, Inc. Eaton Financial Corp. 1/2/92 Computer U6000/55 Disk
(Lessee) (Lessor) 20381133 Magnetic Disk Drive
4211 Van Kirk Street The Beaumont Building 4MB upgrade and accessories
Philadelphia, PA 19135 P.O. Box 9104
Framingham, MA 01701
Diplomat Optical Corp.
4211 Van Kirk Street
Philadelphia, PA 19135
Chanuk, Inc. Colonial Pacific Leasing 5/4/92 Design "A" Basic 20' x 30'
7659 Mohawk Street 20761778 Exhibit
P.O. Box 1100
Tualatin, OR 97062
Chanuk, Inc. Advanta Leasing Corp. 10/19/92 Everpower 486/33 mini top cas
Diplomat Optical Corp. 2 Echelon Plaza, Ste. 300 21290906 computer and equipment
Chanuk, Inc. Corporate Capital Leasing 10/21/92 Display booth showcases
31 W. Miner Street 21471661
West Chester, PA 19382
Chanuk, Inc. Advanta Leasing Corp. 3/12/93 Toshiba computer system
Diplomat Optical Corp. 21740557
Chanuk, Inc. Pitney Bowes Credit Corp. 4/1/93 Equipment manufactured, sold
21800202 distributed by Pitney Bowes,
Monarch Marketing, Dictaphon
Corp. & subject to lease
#9996117-503
Chanuk, Inc. Rockland Lease Funding 8/11/93 Computer U6000/55 Disk
27 Purdy Street 22291763 Magnetic Disk Drive
Harrison, NY 10528 4MB upgrade and accessories
Chanuk, Inc. AT&T Capital Corporation 2/22/94 DFI 486 DX/2-66 Motherboard
Diplomat Optical Corp. One Research Dr., 4th Fl. 22860123 and accessories
Westboro, MA 01581
Chanuk, Inc. Bank of Glen Burnie 2/25/94 Zenith Notebook computers an
Diplomat Optical Corp. 101 Crain Highway, S.E. 22870651 accessories
Ambassador Optical Glen Burnie, MD 21061
Chanuk, Inc. Rock Island Bank 6/6/94 486 DX-33 Motherboard and
230 18th Street 23191674 accessories
Rock Island, IL 61204
</TABLE>
<PAGE>
Schedule 4.08 - Encumbrances
<TABLE>
<CAPTION>
Filing Date/
Jurisdiction: Debtor: Secured Party: Filing No.: Collateral:
- ------------- ------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Chanuk, Inc. Advanta Leasing Corp. 3/16/96 Toshiba computer system
Diplomat Optical Corp. 931231
Chanuk, Inc. Rockland Lease Funding 8/16/93 Computer U6000/55 Disk
933931 Magnetic Disk Drive
4MB upgrade and accessories
Chanuk, Inc. AT&T Capital Corporation 2/23/94 DFI 486 DX/2-66 Motherboard
Diplomat Optical Corp. 94716 and accessories
Chanuk, Inc. Bank of Glen Burnie 2/25/94 Zenith Notebook computers an
Diplomat Optical Corp. 94757 accessories
Ambassador Optical
Chanuk, Inc. Copelco Credit Corp 2/10/95 Copier
95708
Chanuk, Inc. Finova Capital Corp 11/15/95 Panasonic Digital Business
Diplomat Ambassador 955177 System and accessories
Eyeware
Chanuk, Inc. Funding Services U.S. 11/27/95 Dell Notebook computer and
955352 accessories
Chanuk, Inc. Finova Capital Corp 3/29/96 Display Booth
Diplomat Ambassador 961376
Eyeware
Diplomat Ambassador, Inc. Rudy Slucker To be recorded Accounts, including proceeds
Post Closing
Philadelphia Chanuk, Inc. Bucks Co. Bank & Trust 2/24/92 Accounts, chattel paper
County Diplomat Optical 4259 W. Swamp Road 0012446 contract rights, general
Recorder: Suite 201 intangibles, etc...
Doylestown, PA 18901
</TABLE>
<PAGE>
Schedule 4.08 - Encumbrances
<TABLE>
<CAPTION>
Filing Date/
Jurisdiction: Debtor: Secured Party: Filing No.: Collateral:
- ------------- ------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Chanuk, Inc. Copelo Credit Corp 2/10/95 Copier
One Maynard Drive 23981619
Park Ridge, NJ 07656
Chanuk, Inc. Bennett Leasing Corp 7/24/95 Unisys Pentium Model 6000/22
Two Clinton Square 24510296 and accessories
Syracuse, NY 13202
Chanuk, Inc. Funding Services U.S. 11/27/95 Dell Notebook computer and
1055 Westlakes Drive 24911054 accessories
Berwyn, PA 19312
Chanuk, Inc. Finova Capital Corp 12/4/95 Panasonic Digital Business
Diplomat Ambassador P.O. Box 907 24941285 System and accessories
Eyeware 95 N. Route 17 South
Paramus, NJ 07652
Chanuk, Inc. Finova Capital Corp 3/26/96 Display Booth
Diplomat Ambassador 25291636
Eyeware
Diplomat Ambassador, Inc. Rudy Slucker To be recorded Accounts, including proceeds
4211 Van Kirk Street 66 Duffield Rd. Post Closing
Philadelphia, PA 19135 S. Orange, NJ 07079
Philadelphia
County
Prothonotary: Chanuk, Inc. Advanta Leasing Corp. 9/9/91 Micro general smart meter system
Diplomat Optical Corp. 9144477
Chanuk, Inc. Eaton Financial Corp. 1/2/92 Computer U6000/55 Disk
(Lessee) (Lessor) 9212 Magnetic Disk Drive
4MB upgrade and accessories
</TABLE>
<PAGE>
SCHEDULE - 4.11 ERISA PLANS
Diplomat Ambassador offers a Simplified Employee Pension Plan which provides
benefits upon retirment for the individuals who are eligible to participate.
This plan is in conformity with ERISA guidelines. See attachments.
<PAGE>
SCHEDULE-4.14 ENVIRONMENTAL MATTERS
- -None
<PAGE>
SCHEDULE - 4.15 PATENTS, COPYRIGHTS, TRADEMARKS AND LICENSES
(A) None
(B) None
(C) None
(D) Licensee Geographic Areas Product Lines
--------------------------------------------------------------------------
Harve Benard United States & Canada Ophthalmic spectacle
frames with the
trademark Harve Benard*
Sarah Coventry United States & Canada Ophthalmic frames and
cases
Jones New York United States & Canada All ophthalmic eyewear,
sunglasses and eyewear
accessories which embody
the trademark "Jones New
York".
Playschool, Inc. United States Eyewear frames for
prescription eyewear
only and eyewear
accessories. License
excludes prescription
ophthalmic lenses and
non-prescription
sunglasses.
Sterling Winters Co. Worldwide Kathy Ireland sunglass
line
(E) None
<PAGE>
SCHEDULE 5.15 - Contingent Liabilities
MIDLANTIC BANK, N.A. TLX #: 825648
TRADE SERVICE OPERATIONS FAX #: 800-682-4690
499 THORNAL STREET SWIFT: MILAUS33
EDISON, NEW JERSEY 08837
CUSTOMER NUMBER STATEMENT DATE RELATIONSHIP MANAGER
- --------------- -------------- --------------------
DIPLOMAT 05/31/96 M. GEISSLER 772-2213/J. HANSEN 22
DIPLOMAT AMBASSADOR, INC.
1010 ARCH STREET
PHILADELPHIA, PA 19107
- --------------------------------------------------------------------------------
SUMMARY OF TRADE SERVICE PRODUCTS PAGE: 1
- --------------------------------------------------------------------------------
BANKERS ACCEPTANCES
ACCEPTANCE TENOR MATURITY
NO DATE DATE CUR AMOUNT US$ AMOUNT
-- ---- ---- --- ------ ----------
52785-01 03/26/96 06/19/96 USD 33725.00 33725.00
52786-01 03/25/96 06/24/96 USD 23485.00 23485.00
<PAGE>
EXHIBIT 10.15
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") dated as of February 25, 1997
is by and between DIPLOMAT AMBASSADOR, INC. ("Borrower") and CORESTATES BANK,
N.A. ("Lender")
BACKGROUND
Borrower and Lender are parties to a certain Loan Agreement dated as
of June 7, 1996 (the "Original Loan Agreement").
Borrower has requested certain amendments to the Loan Agreement.
Lender is willing to amend the Loan Agreement upon the terms and conditions set
forth herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined in this
Amendment will have the meanings given to such terms in the Loan Agreement.
2. Amendments to Loan Agreement. The Loan Agreement is hereby amended
as follows:
a. The definition for "Credit Limit" in Section 1.01 is hereby
amended to read in its entirety as follows:
"Credit Limit" means the lesser of (A) the Borrowing Base or (B)
$12,000,000.
b. The definition for "Borrowing Base" in Section 1.01 is hereby
amended to read in its entirety as follows:
"Borrowing Base" means (A) the Account Advance Rate multiplied by the
face amount of Borrower's Eligible Accounts, plus (B) the Renaissance
Account Advance Rate multiplied by the face amount of Borrower's
Eligible Renaissance Accounts, plus (C) the lesser of (1) 50% of
Eligible Inventory, valued at the lower of cost or market, less an
Inventory reserve of $45,000, or (2) the Inventory Sublimit, minus (D)
Borrower's Letter of Credit Liability, minus (E) Borrower's Acceptance
Liability.
<PAGE>
c. The following definitions are hereby added:
"Eligible Renaissance Account" means any Purchased Renaissance Account
created in an arm's length transaction which meets all of the
following specifications at the time of determination of Eligible
Renaissance Accounts: (A) the Account is lawfully owned by Borrower
free and clear of all liens, security interests and assignments except
as set forth in clause (B), and Borrower has the right of assignment
thereof and the power to grant a security interest therein; (B) the
Account is subject to a first priority perfected security interest in
favor of Lender; (C) the Account is valid and enforceable,
representing the undisputed indebtedness of the Purchaser to Borrower;
(D) the Account is not subject to any claim of defense, set off,
counterclaim, warranty claim, credit, allowance or adjustment; (E) if
the Account arises from the sale of goods, such sale was an
absolute sale and not on consignment or on approval basis, and such
goods have been shipped or otherwise made available to the Purchaser
in accordance with the Borrower's agreements with such Purchaser; (F)
if the Account arises from the performance of services, such services
have actually been performed; (G) the Account arose in the ordinary
course of business of Borrower; (H) no notice of the bankruptcy,
receivership, reorganization or insolvency of the Purchaser owing such
Account has been received by Lender or Borrower; (I) the Account has
remained unpaid for less than 90 days from the date of original
invoice; (J) the Purchaser is not any federal, state or local
government or governmental agency; (K) the Account does not arise out
of the shipment of goods outside of the United States; (L) the
Account does not arise out of transactions between Borrower and (1) a
non-United States government, governmental agency or
government-controlled business or (2) a Person who is not subject to
the jurisdiction of the court system of the United States or any state
of the United States; (M) the Purchaser for such Account is not
otherwise in default pursuant to the terms underlying the agreement
creating such Account; (N) the Purchaser owing such Account is not
Borrower or an Affiliate of Borrower; (0) the Account is net of any
amounts owed to the Purchaser thereof; (P) the Account is not owed by
a Delinquent Purchaser or any Subsidiary or Affiliate of a Delinquent
Purchaser; and (Q) such Account is otherwise acceptable to Lender in
its reasonable discretion.
-2-
<PAGE>
"Inventory Sublimit" shall be determined in accordance with the
following table:
No. of days after the Inventory Sublimit
date of this Amendment Shall equal:
0-60 $6,000,000
61-90 $5,500,000
91-120 $5,250,000
thereafter $5,000,000
"Purchased Renaissance Account means any Account purchased by Borrower
from Summit Bank pursuant to that certain Collateral Sale Agreement
dated February 25, 1997.
"Renaissance Account Advance Rate" means 70%.
d. The definition for "Eligible Accounts" is hereby amended by
(i) insetting the following text: ", excluding Purchased Renaissance Accounts,"
after the word "Account" where it first appears in said definition and (ii)
amending clause (0) to read in its entirety as follows:
(O) the Account is net of any amounts owed to the Purchaser thereof;
e. Effective on and after the date of this Amendment, the term
"Applicable Margin" shall mean zero.
3. Conditions Precedent to Amendment. Lender's obligations
hereunder shal1 be conditioned upon Borrower delivering to Lender:
a. A replacement Demand Note in the principal amount of
$12,000,000.
b. Satisfactory written proof that Rudy Slucker has loaned to
Borrower $250,000 February 3, 1997 (the "Shareholder Acquisition Loan").
c. A Second Rider to the Subordination Agreement dated June 7,
1996 duly executed by Rudy Slucker, which subordinates the Shareholder
Acquisition Loan to Borrower's indebtedness to Lender.
-3-
<PAGE>
d. A Second Rider to the Guaranty duly executed by Rudy Slucker
and Linda Slucker in form and substance acceptable to Lender.
e. A Second Rider to the Guaranty duly executed by Barry Budilov
and Carole Budilov in form and substance acceptable to Lender.
f. An Explanation and Waiver of Rights Regarding Confession of
Judgment duly executed by each of the Budilovs and each of the Sluckers.
g. An Explanation and Waiver of Rights Regarding Confession of
Judgment duly executed by Borrower.
h. A copy, certified in writing as of the date hereof by the
Secretary or Assistant Secretary of Borrower, of resolutions of the Board of
Directors of Borrower evidencing approval or ratification of this Amendment and
the matters contemplated hereby.
i. A certificate dated as of the date hereof by the Secretary or
Assistant Secretary of Borrower as to the names and signatures of the officers
of Borrower authorized to sign this Amendment and the other documents and
certificates to be executed and delivered pursuant to the Loan Agreement, as
amended hereby.
j. An opinion of counsel to Borrower satisfactory to Lender
regarding the validity of the sale of assets by Renaissance Eyewear, Inc. to
Borrower free and clear of all liens, claims and encumbrances pursuant to
Section 9504 of the Pennsylvania Uniform Commercial Code.
k. A proforma Borrowing Base Certificate, inclusive of all
Collateral acquired by Borrower from Renaissance Eyewear, Inc., dated as of the
date of this Amendment.
l. A payoff letter from Summit Bank dated as of the date of this
Amendment satisfactory to Lender.
m. A proforma balance sheet of Borrower as of December 31, 1996,
which includes the assets and liabilities (if any) acquired and assumed by
Borrower from Renaissance Eyewear, Inc. as of the date of this Amendment.
4. Condition Subsequent. On or before May 31, 1997, Borrower shall
execute a Warrant and Registration Rights Agreement, pursuant to which
Borrower will grant to Lender the right to purchase from Borrower a number of
shares of Borrower's capital stock (the "Warrant Shares") which will yield
Lender a net gain of not less than $300,000 after Lender disposes of the
-4-
<PAGE>
Warrant Shares. If Borrower fails to execute such Warrant and Registration
Rights Agreement, such failure shall constitute an Event of Default under the
Loan Agreement.
5. Confirmation of Representations and Warranties. In order to induce
Lender to enter into this Amendment, Borrower hereby confirms, represents and
warrants that:
a. the representations and warranties set forth in the Loan
Agreement are accurate on and as of the date hereof as though made on and as of
this date (or, to the extent any such representation or warranty expressly
relates to a specific date, as of such specific date); and
b. no Default or Event of Default shall have occurred and be
continuing or will result from the execution by Borrower of this Amendment or
any other document contemplated herein.
6. No Waiver; Acknowledgment of Borrower. No Default or Event of
Default existing on the date hereof or having occurred prior hereto shall be
deemed to have been waived by Lender by reason of entering into this Amendment.
Borrower acknowledges the indebtedness presently owed by Borrower to Lender and
hereby reaffirms its obligation to pay such indebtedness to Lender in full
according to the terms of the Loan Agreement. Borrower confirms that it has no
defenses, setoffs, or counterclaims to the exercise by Lender of its remedies
under the Loan Agreement or applicable law.
7. Payment of Fees and Expenses. Borrower agrees to pay on demand or
to reimburse Lender, and to save Lender harmless against liability for payment
of, all the reasonable out-of-pocket expenses arising in connection with the
review, preparation and enforcement of this Amendment (including, without
limitation, the reasonable fees and expenses of counsel to Lender).
8. Continuation of Provisions. The Loan Agreement shall remain in full
force and effect except to the extent amended hereby. From and after the date
that this Amendment becomes effective, any reference to the Loan Agreement or
similar term, shall be and mean a reference to the Loan Agreement as amended
hereby and as the same may be further amended, modified or supplemented from
time to time.
9. Miscellaneous
a. This Amendment contains all of the modifications to the Loan
Agreement. No further modifications shall be deemed effective, unless in writing
executed in accordance with the Agreement.
-5-
<PAGE>
b. This Amendment shall be binding upon the parties hereto, their
successors and assigns.
c. This Amendment shall be construed and enforced in accordance
with the laws of the Commonwealth of Pennsylvania.
10. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original agreement, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Borrower and Lender have caused this Amendment to
be duly executed by their respective duly authorized officers as of the date
first above written.
(Corporate Seal) DIPLOMAT AMBASSADOR, INC.
Attest:
By /s/ Barry Budilov
/s/ R Slucker -------------------------
- ------------------------ Title: President
Secretary
CORESTATES BANK, N.A.,
By /s/ James A. Kelly, VP
-------------------------
Title: Vice President
-6-
<PAGE>
EXHIBIT 10.16
SECOND RIDER TO GUARANTY
This Second Rider to Guaranty dated February 25, 1997 amends and restates
that certain Rider to Guaranty dated June 7, 1996 executed by Barry Budilov and
Carole Budilov ("Guarantor") in favor of CoreStates Bank, N.A. (the "Bank").
1. Capitalized terms not defined herein shall have the meaning given to
such terms in that certain Guaranty (the "Guaranty") dated June 7, 1996 executed
by Guarantor in favor of the Bank.
2. The first sentence of Section 3 of the Guaranty is hereby amended to
read in its entirety as follows:
In consideration of any existing Obligations and any Obligations which may
hereafter arise or be incurred, each Guarantor, intending to be legally
bound, absolutely and unconditionally (and jointly and severally if more
than one) guaranties to Bank the payment, performance and satisfaction
when due (whether by stated maturity, demand, acceleration or otherwise)
of all Obligations, provided that the monetary liability of Guarantors
hereunder shall not exceed an aggregate of $500,000 plus costs of
enforcement referred to in Section 4 of the Guaranty (the "Limited
Guaranty"), provided that the Limited Guaranty shall increase: (a) in
accordance with that certain Licensed Inventory Liquidation Agreement (the
"LILA") of even date herewith executed by the Obligor, the Guarantor and
Rudy Slucker and Linda Slucker in favor of the Bank, and (b) by an
additional $375,000 (the "Additional Guaranty") if Obligor does not
complete an initial public offering of its capital stock by February 28,
1998 and, within 180 days thereafter, the Bank cannot realize a net gain
of at least $300,000 from the sale of all shares of Obligor's capital
stock which the Bank acquired directly from the Obligor pursuant to a
Warrant between Obligor and the Bank, provided that the Guarantor shall be
released of his obligation for the Additional Guaranty if Obligor realizes
a net profit of at least $1,760,400 for its fiscal year ending December
31, 1997.
3. Upon exercising its rights under the Guaranty, the Bank shall proceed
first, against Rudy Slucker and Linda Slucker for the amount of $500,000
pursuant to their Guaranty to the Bank dated June 7, 1996, together with any
increase thereof attributable to the LILA, second, against Guarantor for the
amount of the Limited Guaranty, and third, against Guarantor for the Additional
Guaranty.
<PAGE>
IN WITNESS WHEREOF, each Guarantor has executed this Rider to Guaranty as
of the date and year first above written.
/s/ [SIGNATURE ILLEGIBLE] /s/ Barry Budilov
- ----------------------------- ------------------------------
Witness Barry Budilov
/s/ Barry Budilov /s/ Carole Budilov
- ----------------------------- ------------------------------
Witness Carole Budilov
-2-
<PAGE>
EXHIBIT 10.17
SECOND RIDER TO GUARANTY
This Second Rider to Guaranty dated February 25, 1997 amends and restates
that certain Rider to Guaranty dated June 7, 1996 executed by Rudy Slucker and
Linda Slucker ("Guarantor") in favor of CoreStates Bank, N.A. (the "Bank").
1. Capitalized terms not defined herein shall have the meaning given to
such terms in that certain Guaranty (the "Guaranty") dated June 7, 1996 executed
by Guarantor in favor of the Bank.
2. The first sentence of Section 3 of the Guaranty is hereby amended to
read in its entirety as follows:
In consideration of any existing Obligations and any Obligations which may
hereafter arise or be incurred, each Guarantor, intending to be legally
bound, absolutely and unconditionally (and jointly and severally if more
than one) guaranties to Bank the payment, performance and satisfaction
when due (whether by stated maturity, demand, acceleration or otherwise)
of all Obligations, provided that the monetary liability of Guarantors
hereunder shall not exceed an aggregate of $500,000 plus costs of
enforcement referred to in Section 4 of the Guaranty (the "Limited
Guaranty"), provided that the Limited Guaranty shall increase: (a) in
accordance with that certain Licensed Inventory Liquidation Agreement (the
"LILA") of even date herewith executed by the Obligor, the Guarantor and
Barry Budilov and Carole Budilov in favor of the Bank, and (b) by an
additional $375,000 (the "Additional Guaranty") if Obligor does not
complete an initial public offering of its capital stock by February 28,
1998 and, within 180 days thereafter, the Bank cannot realize a net gain
of at least $300,000 from the sale of all shares of Obligor's capital
stock which the Bank acquired directly from the Obligor pursuant to a
Warrant between Obligor and the Bank, provided that the Guarantor shall be
released of his obligation for the Additional Guaranty if Obligor realizes
a net profit of at least $1,760,400 for its fiscal year ending December
31, 1997.
3. Upon exercising its rights under the Guaranty, the Bank shall proceed
first, against Guarantor for the amount of the Limited Guaranty, together with
any increase thereof attributable to the LILA, second, against any collateral
pledged by Barry Budilov and Carole Budilov as security for their Guaranty to
the Bank dated June 7, 1996, and third, against Guarantor for the Additional
Guaranty.
<PAGE>
IN WITNESS WHEREOF, each Guarantor has executed this Rider to
Guaranty as of the date and year first above written.
/s/ Barry Budilov /s/ Rudy Slucker
- ----------------------------- ------------------------------
Witness Rudy Slucker
/s/ Barry Budilov /s/ Linda Slucker
- ----------------------------- ------------------------------
Witness Linda Slucker
-2-
<PAGE>
EXHIBIT 10.18
SECOND RIDER TO SUBORDINATION AGREEMENT
This Second Rider to Subordination Agreement (this "Rider") dated February
25, 1997 amends and modifies that certain Subordination Agreement dated as of
June 7, 1996 among CoreStates Bank, N.A. (the "Bank"), Diplomat Ambassador, Inc.
("Borrower") and Rudy Slucker ("Creditor"), as amended and modified by that
certain Rider to Subordination Agreement dated June 7, 1996 (the "First Rider";
the Subordination Agreement, as amended and modified by the First Rider, the
"Subordination Agreement").
On June 6, 1996, the Bank made a $6,000,000 demand line of credit (the
"Demand Line") available to Borrower. Thereafter, the Demand Line was increased
to $8,250,000. Borrower has requested an increase in the Demand Line to
$12,000,000. The Bank is agreeable to such an increase provided that, among
other things, Creditor makes a subordinated loan to Borrower of not less than
$250,000 (the "Shareholder Acquisition Loan") subject to the terms and
conditions of this Rider.
1. Capitalized terms not defined herein shall have the meaning given to
such terms in the Subordination Agreement.
2. Provided that no default or event of default exists under Demand Line
or any other indebtedness of Borrower to the Bank and notwithstanding anything
to the contrary in the Subordination Agreement, Borrower is permitted to pay to
Creditor:
a. interest that accrues on the principal of the Shareholder
Acquisition Loan, provided that the Shareholder Acquisition Loan shall not bear
interest at a rate greater than 8% per annum.
b. the principal of the Shareholder Acquisition Loan in whole or in
part, provided that Borrower has excess borrowing availability under the Demand
Line of at least $750,000 for a period of not less than 90 consecutive days or
$1,000,000 for a period of not less than 60 consecutive days immediately
proceeding and continuing on the date of such proposed repayment of the
Shareholder Acquisition Loan. As used herein, the phrase "excess borrowing
availability" shall mean the excess of Borrower's Borrowing Base over Borrower's
Credit Limit (as such terms are defined in the Loan Agreement dated June 7, 1996
between Borrower and the Bank, as amended from time to time).
<PAGE>
IN WITNESS WHEREOF, the undersigned, individually or by their duly
authorized officers, have executed this Rider on the day and year first above
written.
(Corporate Seal) DIPLOMAT AMBASSADOR, INC.
Attest:
By /s/ Barry Budilov
-----------------------------
/s/ Rudy Slucker Title: President
- --------------------------- --------------------------
Secretary
Witness:
/s/ Barry Budilov /s/ Rudy Slucker
- --------------------------- ---------------------------------
Rudy Slucker
CORESTATES BANK, N.A.,
By /s/ James G. Kelly
------------------------------
Title: Vice President
--------------------------
-2-
<PAGE>
EXHIBIT 10.19
DEMAND NOTE
$12,000,000 Philadelphia, Pennsylvania
February 25, 1997
The undersigned hereby promises to pay to the order of CoreStates Bank,
N.A. ("Lender") the principal sum of TWELVE MILLION DOLLARS ($12,000,000), or,
if less, the unpaid balance of the Demand Line (as such term is defined in the
Loan Agreement hereinafter mentioned), ON DEMAND and at such other times as set
forth in the Loan Agreement, together with interest at the rates and times
provided in the Loan Agreement.
All such principal and interest shall be payable in lawful money of the
United States of America in immediately available funds at Lender's principal
office in Philadelphia, Pennsylvania, or at such other place as the Lender shall
specify from time to time.
The undersigned hereby waives presentment, demand for payment, notice of
dishonor or acceleration, protest and notice of protest and any and all other
notices or demands in connection with the delivery, acceptance, performance,
default or enforcement of this Demand Note, except any notice requirements set
forth in the Loan Agreement.
This is the Demand Note mentioned in, and is entitled to the benefits of,
the Loan Agreement.
This Demand Note is issued in order to amend, restate and evidence, and to
be a substitute for, but not to be a payment, satisfaction or cancellation of,
that certain Master Demand Note dated February 13, 1997 by the undersigned in
favor of Lender in the original principal amount of $8,250,000 (the "Original
Note"). The substitution of this Demand Note for the Original Note does not
extinguish the indebtedness evidenced by the Original Note and such indebtedness
is continuing.
BORROWER HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF
RECORD UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT TO APPEAR FOR AND CONFESS
JUDGMENT AGAINST BORROWER FOR SUCH SUMS AS SHALL HAVE BECOME DUE UNDER THIS
DEMAND NOTE OR THE LOAN AGREEMENT, IN EITHER CASE WITH OR WITHOUT DECLARATION,
WITH COSTS OF SUIT, WITHOUT STAY OF EXECUTION AND WITH THE GREATER OF FIVE
PERCENT (5%) OF SUCH SUMS OR $3,000 ADDED AS A REASONABLE ATTORNEY'S FEE FOR
COLLECTION. BORROWER HEREBY WAIVES THE RIGHT OF INQUISITION ON ANY REAL ESTATE
LEVIED ON, VOLUNTARILY CONDEMNS THE SAME, AUTHORIZES THE PROTHONOTARY OR CLERK
TO ENTER UPON THE
<PAGE>
WRIT OF EXECUTION SAID VOLUNTARY CONDEMNATION AND AGREES THAT SAID REAL ESTATE
MAY BE SOLD ON A WRIT OF EXECUTION; AND ALSO WAIVES AND RELEASES ALL RELIEF FROM
ANY AND ALL APPRAISEMENT, STAY OR EXEMPTION LAW OF ANY STATE NOW IN FORCE OR
HEREAFTER ENACTED. BORROWER ALSO HEREBY WAIVES ITS RIGHT TO OBJECT TO AND
RELEASES ALL PROCEDURAL ERRORS IN SUCH PROCEEDINGS. IF A COPY OF THIS AGREEMENT,
VERIFIED BY AFFIDAVIT LENDER OR SOMEONE ON BEHALF OF LENDER, SHALL HAVE BEEN
FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL AGREEMENT
AS A WARRANT OF ATTORNEY. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER
JUDGMENT AGAINST BORROWER SHALL NOT BE EXHAUSTED BY THE INITIAL EXERCISE
THEREOF, AND THE SAME MAY BE EXERCISED FROM TIME TO TIME AND AS OFTEN AS LENDER
SHALL DEEM NECESSARY OR DESIRABLE AND THIS AGREEMENT SHALL BE A SUFFICIENT
WARRANT.
IN WITNESS WHEREOF the undersigned, by its duly authorized officers,
executes this Demand Note on the day and year first above written.
(Corporate Seal) DIPLOMAT AMBASSADOR, INC.
Attest:
By /s/ Barry Budilov
/s/ Rudy Slucker ----------------------------
- -------------------------- Title: President
Secretary ------------------------
<PAGE>
Exhibit 10.20
INDEX TO DIPLOMAT-AMBASSADOR INC.
PRODUCT LICENSE AGREEMENT
THE SCHEDULE
PARAGRAPH PAGE NO.
- --------- --------
1. GRANT OF LICENSE
a. Grant 1 - 2
b. Term 2
c. License Year and License Quarter 2 - 3
d. Territory 3
e. Minimum Net Sales 3
2. COVENANTS OF LICENSEE
a. Use 3 - 4
b. Best Efforts 5
c. Royalties
(i) Guaranteed Royalties 5
(ii) Earned Royalties 5 - 6
(iii) Interest 6
d. Statements and Payments 6 - 7
e. Records and Audit 7
f. Expenses of Conducting Examinations 7 - 8
g. Product Quality 8
h. Approval of Products and the Materials 8 - 10
i. Title and Protection and Preservation
of Trademarks and Copyrights 10 - 12
j. Right to Subcontract, Licensee
Financial Statements and Lists
of Sources and Customers 12
k. Inventory 13
l. Trademarks and Non-Competitive Brands 14
m. Indemnification and Product
Liability Insurance 14 - 15
n. Advertising Expenditures 15
3. ADDITIONAL COVENANTS OF THE PARTIES
a. Reservation of Rights 16
b. Certain Sales 16
4. TITLE AND PROTECTION
a. Indemnification by Licensor 17
b. Enforcement 17
5. RELATIONSHIP BETWEEN THE PARTIES
a. No Joint Venture 17
b. Assignment 18
<PAGE>
INDEX TO DIPLOMAT-AMBASSADOR INC.
PRODUCT LICENSE AGREEMENT
(Continued)
6. SUBLICENSING 18
7. DEFAULTS AND RIGHTS OF TERMINATION
a. Defaults and Right to Cure 18 - 19
b. Bankruptcy or Assignment for
Creditors, Business Discontinuance 19
c. Loss of Trademark Rights 19
d. Impossible Performance 19 - 20
8. EXPIRATION OR TERMINATION
a. Effect of Expiration or Termination 20
b. Reserved Rights 20
c. Inventory 20 - 21
d. Continued Sales After Expiration
or Termination 21
e. Equitable Relief and Legal Fees 21 - 22
f. Continuity of Sales 22
g. Termination Fee 22
9. NOTICES
a. Effectiveness 22 - 23
b. Address Change 23
10. SEVERABILITY 23
11. CONSENTS AND APPROVALS 23
12. APPLICABLE LAW 23 - 24
13. NO BROKER 24
14. CONSTRUCTION 24
15. SURVIVABILITY 24
16. RIGHTS CUMULATIVE 24
17. ENTIRE AGREEMENT 24
<PAGE>
THE SCHEDULE referred to in the Agreement made as of June 14, 1995.
S.1. LICENSOR: LIFESTYLE BRANDS, LTD.
680 North Lake Shore Drive
Chicago, IL 60611
S.2. LICENSEE: DIPLOMAT-AMBASSADOR INC.
1010 Arch Street, Third Floor
Philadelphia, PA 19107
Attn: Barry Budilov
Phone: 215-925-1551
Fax: 215-925-0204
S.3. THE TRADEMARKS: SARAH COVENTRY; BUTTERFLY DESIGN;
FASHION CHANGES, STYLE DOESN'T
S.4. THE TYPE OF LICENSE: Exclusive
S.5. THE USE OF THE TRADEMARKS: Design, manufacture, advertise,
promote, sell and distribute to retail
stores located in the Territory or to
wholesalers which will sell the
Products to and only to retail stores
located in the Territory.
S.6. THE PRODUCTS: Sunglasses, sunglass cases, fashion
eyewear neck cords and sunglass pin holders
S.7. THE TERRITORY: United States and Canada
S.8. THE COMMENCEMENT DATE: July 1, 1995
S.9. THE EXPIRATION DATE: June 30, 1998
S.10. THE MINIMUM NET SALES (in United States Dollars):
License Year Amount
------------ ------
LY1 (7/1/95 - 6/30/96) $
LY2 (7/1/96 - 6/30/97) $
LY3 (7/1/97 - 6/30/98) $
<PAGE>
THE SCHEDULE (Continued)
S.11. GUARANTEED ROYALTIES (in United States Dollars):
License Year Amount
------------ ------
LYl (7/1/95 -6/30/96) $
LY2 (7/1/96 -6/30/97) $
LY3 (7/1/97 -6/30/98) $
S.12. EARNED ROYALTIES:
percent ( ) of Net Sales (as defined in Paragraph 2.d.(ii)
and subject to the provisions of Paragraph 3.b.(ii) of the
Agreement) of the Products.
S.13. THE ADDRESS WHERE BOOKS KEPT: See Paragraph S.2 above.
LIFESTYLE BRANDS, LTD.
(LICENSOR)
By: /s/ David Batchelor
-----------------------------
David H.L. Batchelor
Senior Vice President
Product Marketing
Date: Oct. 3 1995
DIPLOMAT-AMBASSADOR INC.
(LICENSEE)
By: /s/ Barry Budilov
-----------------------------
Title: President
Date: 11/1/95
<PAGE>
LICENSE AGREEMENT
This Agreement is made as of the 14th day of June 1995, by and between the
corporation described in Paragraph S.1. of the Schedule attached hereto and made
a part hereof (hereinafter referred to as "Licensor") and the corporation
described in Paragraph S.2. of the Schedule (hereinafter referred to as
"Licensee").
RECITALS
WHEREAS, Licensor has certain rights in and to the trademark SARAH
COVENTRY and other trademarks identified in Paragraph S.3. of the Schedule
(hereinafter collectively referred to as the "Trademarks");
WHEREAS, Licensee recognizes that the Trademarks have acquired notoriety
and goodwill with the general public by virtue of their use in connection with
home party plan sales of jewelry and have since gained further goodwill and
notoriety through the manufacture, advertising, promotion, sale and distribution
of a broad range of consumer products, including, but not limited to, jewelry,
clothing, leather goods and personal health and home articles and accessories;
WHEREAS, the parties hereto desire that Licensor grant to Licensee a
license to use the Trademarks in the design, manufacture, advertising,
promotion, sale and distribution of the "Products" (as defined in Paragraph
1.a.(i) hereof);
NOW, THEREFORE, in consideration of the mutual promises herein contained,
it is mutually agreed as follows:
1. GRANT OF LICENSE.
a. Grant:
(i) Upon and subject to the terms and conditions hereinafter
set forth, Licensor hereby grants to Licensee, and Licensee hereby
accepts, the right, license and privilege specified in Paragraph
S.4. of the Schedule to use the Trademarks in connection with, and
only with, the use specified in Paragraph S.5. of the Schedule on
and in connection with specifically designated and approved articles
of merchandise specified in Paragraph S.6. of the Schedule
(hereinafter collectively referred to as the "Products") in the
territory specified in Paragraph S.7. of the Schedule (hereinafter
referred to as the "Territory"). Such right, license and privilege
is hereinafter referred to as the "License." It is understood and
agreed that while the manufacture of the Products may take place
outside the Territory, none of the Products may be advertised,
promoted, sold or distributed outside the Territory by Licensee.
-1-
<PAGE>
(ii) Nothing contained in this Agreement shall prevent
Licensor from doing any or all of the following: (a) using or
granting one or more others the right or license to use the
Trademarks on or in connection with the Products in any area of the
world other than the Territory or on or in connection with any
services or goods other than the Products in any or all area(s) of
the world including the Territory; (b) manufacturing or having
manufactured in the Territory the Products for sale outside the
Territory; (c) producing or having produced limited quantities of
the Products to be used in the Territory specifically for
promotional and advertising purposes and not for sale; and (d)
retaining and exercising the exclusive rights hereby reserved to
Licensor to design, manufacture, advertise, promote, sell and
distribute and license the design, manufacture, advertising,
promotion, sale and distribution of any and all of the Products in
the Territory and elsewhere or either thereof through direct
marketing sales (including, but not limited to, direct mail, catalog
houses, home shopping programs, infomercials and the like), premium
sales, incentive sales and home party plan sales.
b. Term:
(i) The term of the License and this Agreement (hereinafter
referred to as the "Term") shall commence on the date specified in
Paragraph S.8. of the Schedule (hereinafter referred to as the
"Commencement Date") and shall expire at midnight Chicago time on
the date specified in Paragraph S.9. of the Schedule (hereinafter
referred to as the "Expiration Date"), unless sooner terminated by
operation of law or as provided in this Agreement.
(ii) On the condition that Licensee shall be in compliance
with the terms of this Agreement, including the timely payment of
all amounts due under it, and if Licensee has achieved the Minimum
Net Sales as specified in Paragraph S.10 of the Schedule for the
third License Year, then this Agreement shall automatically renew
for a three (3) year term (July 1, 1998 - June 30, 2001) on the same
terms and conditions, except that the Minimum Net Sales for the
first License Year of the renewal term (7/1/98 - 6/30/99) shall be
United States Dollars
(U.S.$ ) and United States
Dollars (U.S.$ ) for License Year Two of the renewal term
(7/1/99 - 6/30/00) and there shall be no automatic renewal of the
extended term.
c. License Year and License Quarter:
(i) For all purposes under this Agreement, a "License Year"
shall be twelve (12) consecutive calendar
-2-
<PAGE>
months commencing on the Commencement Date and ending at midnight
Chicago time on the day preceding the anniversary of the
Commencement Date and each twelve (12) month period thereafter, and
if the expiration or termination of the License and this Agreement
is effective other than at the end of such twelve (12) month period,
then the final period of less than twelve (12) months ending on the
effective date of such expiration or termination shall be deemed to
be a License Year.
(ii) For all purposes under this Agreement, a "License
Quarter" shall be the first (1st) and each succeeding three (3)
month period of each License Year, and if the expiration or
termination of the License and this Agreement is effective other
than at the end of a License Year, then the final period of less
than three (3) months ending on the effective date of such
expiration or termination shall be deemed to be a License Quarter.
d. Territory: The License shall extend only to the Territory, and
the use by Licensee of the Trademarks shall be confined to the Territory.
e. Minimum Net Sales: Notwithstanding anything in this Agreement to
the contrary, if Licensee's Net Sales (as defined in Paragraph 2.d.(ii)
hereof) in any License Year are less than those specified in Paragraph
S.10. of the Schedule for such License Year (hereinafter referred to as
the "Minimum Net Sales"), then Licensor shall have the right to either:
(i) declare the License to be non-exclusive, thereby giving Licensor the
rights to design, manufacture, advertise, promote, sell and distribute the
Products in competition with Licensee or otherwise grant any or all of
such rights to one or more other parties or (ii) terminate the License and
this Agreement by deeming the failure to attain the Minimum Net Sales to
be an incurable default under this Agreement. Such declaration or
termination: (a) shall be effective upon the receipt by Licensee of
written notice from Licensor no later than thirty (30) days after
Licensor's receipt of the Statement (as defined in Paragraph 2.d.(i)
hereof) evidencing such shortfall and (b) shall have no effect upon the
amounts due and payable to Licensor for periods prior to or after such
declaration or termination.
2. COVENANTS OF LICENSEE.
a. Use:
(i) Subject to Licensor's prior approval as hereinafter
required, Licensee shall commence the design, manufacture,
advertising, promotion, sale and distribution of or for the Products
as soon as practicable after the Commencement Date, but in no event
later than January 1, 1997. If Licensee fails to do so
-3-
<PAGE>
by such date, Licensor may treat such failure as an incurable
default under this Agreement. In the event during any License Year,
Licensee has not on a regular and ongoing basis sold or distributed
one or more of the Products within one or more categories of the
Products under Paragraph S.6. of the Schedule, Licensor shall have
the right to delete any of such Products or such categories from the
Schedule upon not less than thirty (30) days' prior written notice
to Licensee.
(ii) Licensee shall not cause or authorize any use of the
Trademarks in any area of the world outside the Territory and shall
not knowingly manufacture, sell or otherwise deal with or distribute
any of the Products on behalf of or to any individual(s), entity or
entities that Licensee believes or has reason to believe intends or
intend or is or are likely to sell, deal with or distribute any of
the Products in any way outside the Territory. Licensee shall, upon
receipt of notice from Licensor, immediately and permanently cease
supplying any or all of the Products to the individual(s), entity or
entities named in such notice as one or more of those that directly
or indirectly sell, deal with or distribute any or all of the
Products outside the Territory.
(iii) Licensee warrants and represents that it has and will
continue to have throughout the Term and the Sell-Off Period (as
defined in Paragraph 8.d. hereof) the legal right and authority to
enter into this Agreement and to assume and perform its duties and
obligations hereunder and that there is or are no, and Licensee
shall not enter into during the Term and the Sell-Off Period any,
contract(s), agreement(s) or understanding(s) with any
individual(s), entity or entities which would in any way restrict or
prevent Licensee from the performance of its duties and obligations
under this Agreement.
(iv) Licensee shall be responsible for obtaining, at its own
expense, any and all licenses, permits, approvals (including
governmental and all other licenses, permits and approvals)
necessary for Licensee to: (a) design, manufacture, advertise,
promote, sell and distribute the Products; (b) pay Guaranteed
Royalties (as defined in Paragraph 2.c.(i) hereof), Earned Royalties
(as defined in Paragraph 2.c.(ii) hereof), Advertising Contributions
(as defined in Paragraph 2.n. hereof) and taxes; and (c) fulfill any
and all other duties and obligations and exercise the rights of
Licensee under this Agreement. In the event Licensee is unable, for
any reason, to obtain prior to the Commencement Date or maintain
throughout the Term all of such licenses, permits or approvals, such
inability shall be an incurable default under this Agreement.
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b. Best Efforts: Licensee shall, throughout the Term and the
Sell-Off Period, constantly use its best efforts in the advertising,
promoting, selling and distributing and in all other dealing with or
disposal of the Products to protect the good name and goodwill associated
with the Trademarks and Licensor and to obtain the greatest Net Sales
throughout the entire Territory and the entire Term and the Sell-Off
Period. Licensee acknowledges and agrees that the sale of the Products in
certain types of stores can negatively affect the reputation and the value
of the Trademarks, as some types of stores are perceived by the public as
having lower quality products than other types of stores regardless of
whether the products or their prices are the same. Licensee agrees that it
will use its best efforts to sell and distribute the Products only to
those stores that are generally perceived by the public as good quality
stores by virtue of their reputations for quality products and by their
providing certain service amenities associated with good quality stores,
which may include without limitation the availability of any or all of the
following: customer service desks; knowledgeable, regular, full-time
service representatives; and provision for the return of products.
Licensee and Licensor agree that warehouse outlets, deep discount chains
and other similar channels are generally perceived by the public as having
lower quality products and will therefore not be considered acceptable
channels of sale and distribution of the Products under this Agreement.
Licensor and Licensee agree to reasonably attempt to settle all
differences of opinion as to whether or not a specific store or chain of
stores is an acceptable channel for the sale and distribution of the
Products, but Licensor's decisions in this matter shall govern and
control. Except as provided in Paragraph 2.n. hereof, Licensee shall be
responsible for and shall assume and pay for all costs and expenses
related to Licensee's design, manufacture, advertising, promotion, sale
and distribution of the Products.
c. Royalties:
(i) Guaranteed Royalties: Licensee will pay to Licensor or its
designee(s) guaranteed minimum royalties (hereinafter referred to as
"Guaranteed Royalties") in the amount and for each License Year
specified in Paragraph S.11. of the Schedule. Guaranteed Royalties
for each such License Year shall be paid in four (4) equal
installments, and each such installment shall be due on the first
(1st) day of each License Quarter of each such License Year. Under
no circumstances whatsoever will Licensor return to Licensee all or
any part(s) of Guaranteed Royalties, except as provided in Paragraph
8.b. hereof.
(ii) Earned Royalties: Licensee shall pay to Licensor or its
designee(s) royalties (hereinafter referred to as "Earned
Royalties") in the amount equal to the amount calculated according
to Paragraph S.12. of the
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Schedule, but only to the extent that for each License Year such
calculated amount exceeds Guaranteed Royalties for such License
Year. Earned Royalties shall be payable in accordance with the terms
and conditions of Paragraph 2.d. hereof.
(iii) Interest: Each sum, including, but not limited to,
Guaranteed Royalties and Earned Royalties, that shall not be paid on
the due date by Licensee shall bear interest from such due date
until the date on which such sum is paid in full at an amount equal
to the lesser of percent ( %) per annum or the highest
percentage rate allowed by law.
d. Statements and Payments:
(i) Within forty-five (45) days after each License Quarter or
the conclusion of the Sell-Off Period, Licensee shall furnish to
Licensor or its designee a complete and accurate statement in a
format acceptable to Licensor and certified to be true by the Chief
Financial Officer of Licensee (hereinafter referred to as the
"Statement") showing for such License Quarter and the License Year
through such period or for the Sell-Off Period: (a) a listing of
Licensee's accounts in the Territory and the units and description
of all of the Products sold and distributed or otherwise disposed of
by Licensee; (b) the computations of Net Sales on all such sales;
(c) the computation of Earned Royalties and the amount of Earned
Royalties due and payable; and (d) the advertising and promotion
expenditures made by Licensee pursuant to Paragraph 2.n. hereof and
the details of all such expenditures, supported by copies of
vouchers and copies of all advertising for or relating to the period
covered by such Statement. When, during any License Year, the amount
of Guaranteed Royalties for such License Year has been exceeded by
the amount calculated according to Paragraph S.12. of the Schedule
for such License Year, Licensee shall commence payment of Earned
Royalties. Licensee shall pay all accrued and unpaid Earned
Royalties by remittance accompanying each of the Statements.
(ii) As used in this Agreement, the term "Net Sales" means the
invoice price charged by Licensee for the Products less (x) refunds,
credits and allowances actually made or allowed to customers for
returned Products, (y) customary trade discounts (including
anticipations) afforded to and actually taken by customers against
payment for the Products and (z) value added tax assessed on sales
(only where applicable).
(iii) In the event the percentage of returns of Products in
any License Year exceeds percent ( %) of Net Sales for such
License Year, then Licensor may
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elect to treat such an occurrence as an incurable default by
Licensee under this Agreement.
(iv) Except as otherwise specifically provided in this
Agreement, if Licensee sells any or all of the Products to any
individual(s), entity or entities in whole or in part controlled by
Licensee, the invoice price used to determine Net Sales hereunder
shall be the invoice price at which the Products are resold by such
individual or entity to an unrelated customer in an arm's-length
transaction.
e. Records and Audit: Licensee shall: (i) keep accurate books of
account and records (including but not limited to utilization of
consecutively numbered invoices which reconcile to the Statements and
Licensee's general ledger) covering all transactions relating to or
arising out of the License and this Agreement (which books and records
shall be maintained separately from Licensee's documentation relating to
other items manufactured or sold by Licensee) and (ii) permit Licensor or
its nominees, employees, agents or representatives to have full access to,
to inspect such books and records at all reasonable hours of the day, to
conduct an examination of and to copy (at Licensor's expense) all such
books and records. Licensee shall maintain in good order and condition all
such books and records for a period of two (2) years after the expiration
or termination of the License and this Agreement or, in the event of a
dispute between the parties hereto, until such dispute is resolved,
whichever date is later, and such books and records shall be kept at the
address stated in Paragraph S.13. of the Schedule, except as such address
may be changed from time to time in accordance with Paragraph 9.b. hereof.
Receipt or acceptance by Licensor of any Statement furnished pursuant
hereto or any sums paid by Licensee hereunder shall not preclude Licensor
from questioning the correctness thereof at any time, and if one or more
inconsistencies or mistakes are discovered by Licensor in such Statement,
it or they shall be rectified in an amended Statement received by Licensor
no later than ten (10) days after the date of receipt by Licensee of
notice of that which should be rectified.
f. Expenses of Conducting Examinations: If an inspection or
examination referred to in Paragraph 2.e. hereof discloses, or Licensor or
Licensee otherwise discovers, an underpayment of Earned Royalties and
Advertising Contributions or either thereof, the amount of such
underpayment shall be paid by Licensee to Licensor no later than thirty
(30) days after receipt of notice or knowledge thereof by Licensee. In the
event of such an underpayment by Licensee in excess of percent ( %)
in any License Year, then Licensor may elect to treat such occurrence as
an incurable default by Licensee under this Agreement within thirty (30)
days of discovery. If such inspection or examination: (i) discloses or
Licensor or Licensee otherwise discovers an overpayment of Earned
Royalties
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and Advertising Contributions or either thereof (or, pursuant to Paragraph
8.b. hereof, an overpayment of Guaranteed Royalties), the amount of such
overpayment shall be credited against future payment(s) of any or all of
the Guaranteed Royalties, Earned Royalties and Advertising Contributions
or, in the event of the expiration or termination of the License and this
Agreement and there is or are no such future payment(s), such amount shall
be paid by Licensor to Licensee no later than thirty (30) days after the
discovery thereof by Licensor, subject to Licensor's rights of setoff,
recoupment and counterclaim or (ii) reveals that for the period covered by
such inspection or examination there is an error of percent ( %) or
more in the Earned Royalties and Advertising Contributions or either
thereof previously reported on the Statement(s) as being due from
Licensee, all expenses involved in the conducting of such inspection or
examination shall be borne by Licensee. Licensee shall pay to Licensor the
amount of such expenses no later than ten (10) days after Licensee's
receipt of Licensor's invoice therefor. If such error is less than
percent ( %), such expenses shall be borne by Licensor.
g. Product Quality: Licensee hereby warrants and agrees that the
Products designed, manufactured, advertised, promoted, sold or distributed
under this Agreement shall bear the Trademarks faithfully produced and
shall meet the high standards of quality, workmanship, material, design,
size, color and style established by Licensor in accordance with the terms
and conditions of this Agreement, including without limitation the Quality
Standards attached hereto and made a part of this Agreement as Exhibit A.
Licensee will not knowingly or negligently cause or authorize any or all
of the Products not conforming to this Agreement to be sold or
distributed, as doing so may adversely affect Licensor's goodwill in the
Trademarks. All of the Products shall conform to and comply with, in all
respects, all federal, state and local laws, rules and regulations
governing the design, quality, labeling and safety of such Products.
Licensee shall not cause, condone or authorize: (i) the use of any
substandard or offensive materials in or in connection with any or all of
the Products; (ii) any violation of any federal, state or local law or
regulation, including, but not limited to, provisions thereof imposing
advertising standards or requiring trade or content description of the
Products; or (iii) the use of the Trademarks or any other word(s),
device(s) or symbol(s) associated in any way with any or all of Licensor
and its subsidiaries and affiliates in connection with any product or
activity that is not the subject of the License and this Agreement.
h. Approval of Products and the Materials:
(i) Licensee understands and agrees that each of the Products
and other items bearing the Trademarks or intended for use in
connection with the Products
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(hereinafter collectively referred to as the "Materials") must be
approved in advance by Licensor. The Materials include, but are not
limited to, cartons, containers, labels, wrappers, packages and
other inner and outer packaging materials, fixtures, displays,
artwork and printing, advertising, sales, marketing and promotional
materials. Licensee shall, at its own expense, submit to Licensor or
its designee(s) for written approval, samples of each of the
Products and the Materials at each stage of development thereof,
which shall include, but not be limited to: (a) an initial sketch or
photograph; (b) a sample prototype or equivalent acceptable to
Licensor; and (c) two (2) samples as actually manufactured or
produced in final form as intended to be sold and distributed or
either thereof by Licensee. Licensee must obtain Licensor's written
approval of each stage of development before proceeding to the next
stage, and in no event shall Licensee commence or permit the mass
manufacture, advertising, promotion, sale or distribution of any or
all of the Products or the Materials unless and until Licensee has
received Licensor's written approval of the samples provided
pursuant to (c) of this Paragraph. While Licensor shall have the
sole and absolute discretion to approve or withhold approval of any
and all of the Products, the Materials and sample(s) of either
throughout each stage of development, Licensor shall only withhold
approval on the samples submitted pursuant to (c) of this Paragraph
because such samples do not conform to that or those thing(s)
previously approved. In the event Licensor fails to provide its
approval or disapproval of any or all things submitted to Licensor
pursuant to this Paragraph 2.h.(i) within fourteen (14) days of
Licensor's receipt thereof, Licensor shall be deemed to have
disapproved of such thing(s).
(ii) To ensure that each of the Products and the Materials are
constantly maintained in conformance with the previously approved
samples pursuant to Paragraph 2.h.(i) hereof, Licensee shall, within
seven (7) days of receipt of a request from Licensor, send or cause
to be sent to Licensor at Licensee's expense: (a) such actual
samples requested by Licensor of the Products and the Materials
Licensee is using, manufacturing, selling, distributing or otherwise
disposing of and (b) a listing or revised listing of each location
where any of the Products and the Materials or either thereof are
designed, manufactured, stored or otherwise dealt with, except to
the extent such listing or revised listing duplicates currently
accurate information provided pursuant to Paragraph 2.j.(ii) hereof.
Licensor and its nominees, employees, agents and representatives
shall have the right to enter upon and inspect, at all reasonable
hours of the day and with reasonable notice, any and all such
location(s) and to take, without
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payment, such samples of any of the Products and the Materials as
Licensor reasonably requires for the purposes of such inspection.
(iii) If any of the Products or Materials sent or taken
pursuant to Paragraph 2.h.(ii) hereof or that otherwise come(s) to
the attention of Licensor does or do not conform in Licensor's sole
reasonable opinion to the previously approved samples, Licensor
shall so notify Licensee, in writing, specifying in what respect
such of the Products or Materials is or are unacceptable.
Immediately upon receipt of such notice, Licensee shall suspend all
manufacture, sale and distribution of and shall obtain back from
Licensee's customers all such Products and Materials and shall not
resume the manufacture, sale or distribution thereof unless and
until Licensee has made all necessary changes to the satisfaction of
Licensor and has received Licensor's written reapproval of each of
such Products and Materials.
(iv) Except as otherwise specifically provided in this
Agreement, all of the Products and the Materials that are not
approved by Licensor or that are determined by Licensor to be
non-conforming or unacceptable shall not be sold, distributed or
otherwise dealt with by Licensee. All such Products and Materials
shall be destroyed by Licensee with, if Licensor so requests, an
appropriate certificate of destruction furnished to Licensor.
(v) Except as provided in Paragraph 2.b.(iv) hereof, any and
all sale(s), distribution or use by Licensee of unapproved,
non-conforming or unacceptable Products or Materials shall not only
constitute an incurable default under the terms of this Agreement,
but such Products or Materials also shall be considered unlicensed
and an infringement of Licensor's proprietary rights, and Licensor
shall have the right to bring legal action against Licensee for any
and all remedies available to Licensor in addition to the remedies
available under this Agreement.
i. Title and Protection and Preservation of Trademarks and
Copyrights:
(i) Licensee hereby acknowledges each of the following: the
great value of the goodwill associated with the Trademarks; the
worldwide recognition thereof; that the proprietary rights therein
and goodwill associated therewith are solely owned by and belong to
Licensor; that the Trademarks and other related words, devices,
designs and symbols are inherently distinctive or have secondary
meaning firmly associated in the mind of the general public with
Licensor, its subsidiaries and
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affiliates and its or their activities; and that all additional
goodwill associated with the Trademarks created through the use of
such Trademarks by Licensee shall inure to the sole benefit of
Licensor. During and after the Term, Licensee shall not:
(a) attack or question the validity of, or assist any
individual(s), entity or entities in attacking or questioning,
the title or any rights of or claimed by any or all of
Licensor, its subsidiaries and affiliates and their respective
licensees and sublicensees in and to the Trademarks or any
other trademark(s), copyright(s) or such other intellectual or
intangible property or properties associated or connected with
any or all of Licensor, its subsidiaries and affiliates, their
publications, published material, activities, licensees and
sublicensees;
(b) directly or indirectly seek for itself, or assist
any third party or parties to use or acquire, any rights,
proprietary or otherwise, in any patent, trademark, copyright
or such other intellectual or intangible property so
associated or connected, without the prior written approval of
Licensor;
(c) in any way seek to avoid Licensee's duties or
obligations under this Agreement because of the assertion or
allegation by any individual(s), entity or entities that any
or all of the Trademarks are invalid or by reason of any
contest concerning the rights of or claimed by Licensor; or
(d) file or prosecute one or more trademark applications
regarding Licensee's use of the Trademarks, unless first
requested to do so in writing by Licensor. (Licensee will
cooperate with Licensor in connection with any and all such
filings.)
(ii) Licensee shall:
(a) use the Trademarks as permitted under this Agreement
in each jurisdiction strictly in accordance with the legal
requirements in such jurisdiction;
(b) affix or imprint irremovably and legibly on each of
the Products and on or within all of the Materials such
Trademarks, trademark notices, copyright notices and legends
as Licensor directs;
(c) manufacture, sell, distribute or otherwise deal with
the Materials solely in connection with the Products (except
for any or all of the Materials
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which do not bear one or more of the Trademarks or otherwise
are not associated with any or all of the Products by virtue
of, but not limited to, such things as design, color or
content); and
(d) not cause or grant permission to any third party or
parties to acquire any copyright(s) or other proprietary
right(s) in connection with any word(s), device(s), design(s)
or symbol(s) used by Licensee in connection with any of the
Products or the Materials.
j. Right to Subcontract, Licensee Financial Statements and Lists of
Sources and Customers:
(i) Licensee may subcontract the manufacture of any or all
component part(s) of any or all of the Products bearing the
Trademarks pursuant to this Agreement, provided Licensee first
obtains from each such subcontractor an executed written agreement
in the form substantially identical to that attached hereto and made
a part hereof as Exhibit B and furnishes a copy of each such
executed agreement to Licensor.
(ii) With the Statement submitted at the end of each License
Year pursuant to Paragraph 2.d. (i) hereof and at any other time so
requested by Licensor during the Term and the Sell-Off Period or
either thereof, Licensee shall provide Licensor with: (a) copies of
Licensee's most recent audited financial statements (including
without limitation footnotes) and annual reports, 10-K's, balance
sheets or other similar documents that indicate Licensee's financial
status and (b) an updated list of the names and addresses of all
manufacturing sources, subcontractors, suppliers, dealers,
wholesalers, retailers, customers and others which have been engaged
in the design, manufacture, advertising, promotion, sale,
distribution or other dealings with any or all of the Products and
the Materials during the Term and the Sell-Off Period or either
thereof. Such list shall, if so requested by Licensor, contain the
full specification of all designs, utility models, patents or
trademarks that may be involved, directly or indirectly, in the
manufacture, production or distribution of any or all of the
Products and the Materials. Licensee shall obtain the consent of any
and all relevant third parties for such disclosure. Licensor shall
keep any material disclosed to it under this Paragraph 2.j.(ii)
confidential and shall not disclose it without Licensee's prior
written notice. Nothing herein, however, shall prevent Licensor from
disclosing such material pursuant to a court order which requires
Licensor to so disclose such material, and in such event, Licensor
shall notify Licensee of such requirement.
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k. Inventory: Insofar as reasonable, Licensee shall at all times
during the Term be able to fulfill all orders for the Products promptly
and yet not have an excessive inventory on hand at the time of the
expiration or termination of the License. Within forty-five (45) days
after each License Year or within ten (10) days of receipt of a request
from Licensor, Licensee will furnish Licensor with a statement signed by
the Chief Financial Officer of Licensee, setting forth in detail the
quantities of work in process and finished goods inventories of the
Products.
l. Trademarks and Non-Competitive Brands:
(i) For purposes of this Paragraph 2.1., the term "Licensee"
shall include any affiliate, subsidiary or principal shareholder of
Licensee.
(ii) Licensee shall not use, cause or authorize to be used any
word(s), device(s), design(s), slogan(s) or symbol(s) confusingly
similar to any or all of the Trademarks. During the Term and the
Sell-Off Period, any or all of the following shall not be used on or
in connection with the Products without Licensor's prior written
consent: (a) permutations of any or all of the Trademarks; (b)
secondary marks; or (c) new words, devices, designs, slogans or
symbols. Upon such authorization by Licensor and use by Licensee,
each such permutation, secondary mark, word, device, design, slogan
and symbol shall be the property of Licensor and shall be included
as one of the Trademarks subject to this Agreement. Should Licensee
create or develop any advertising, promotion, packaging or trade
dress unique to the Products, all such advertising, promotion,
packaging or trade dress shall be the property of Licensor and shall
not be used by Licensee on or in connection with any other product
or merchandise during and after the Term. No later than ten (10)
days after expiration or termination of this Agreement or at any
other time Licensor so requests, Licensee will assign to Licensor,
without charge, all of Licensee's right, title and interest
(including without limitation all copyrights) in and to such
advertising, promotion, packaging or trade dress and shall cooperate
fully with Licensor in preparing and recording whatever
documentation may be necessary or desirable to effect such
assignment.
(iii) Without Licensor's prior written consent, Licensee shall
not design, manufacture, advertise, promote, distribute, sell or
deal with in any way in the Territory any product(s) or material(s)
that is or are in Licensor's sole and absolute judgment confusingly
similar to any or all of the Products and the Materials.
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(iv) Licensee shall not use color combinations, designs or
styles unique to any or all of the Products on or in connection with
any other product(s), and Licensee, without charge, will assign to
Licensor ownership of all rights that Licensee has acquired or may
acquire in such color combinations, designs or styles no later than
ten (10) days after expiration or termination of this Agreement or
at any other time Licensor so requests.
(v) Licensee shall not during the Term and the Sell-Off
Period design, manufacture, advertise, promote, distribute, sell or
otherwise deal with any men's sophisticate publication(s) or
product(s) identified with or by any such publication(s) that are,
in Licensor's opinion, competitive with Playboy magazine, which for
the purposes of this paragraph shall include, but not be limited to,
Hustler or Penthouse. In the event Licensee commences any dealing
with such publication(s) or product(s), whether directly or
indirectly, such dealing shall be a default under this Agreement.
m. Indemnification and Product Liability Insurance: Licensee shall:
(i) indemnify, defend and hold harmless Licensor, its
subsidiaries and affiliates, their respective shareholders,
licensees and franchisees and the agents, officers, directors and
employees of each (hereinafter collectively referred to as
"Indemnitees") from all costs, claims, suits, losses, damages and
expenses (including without limitation attorneys' fees and
litigation expenses) arising out of or in connection with: (a) the
design, manufacture, advertising, promotion, sale or distribution of
or any other dealing whatsoever with the Products; (b) any alleged
action(s) or failure(s) to act whatsoever by Licensee; (c) any
alleged defect(s) in any or all of the Products; (d) any alleged
non-conformity to or non-compliance with any law(s) pertaining to
the design, quality, safety, advertising, promotion or marketing of
any or all of the Products and the Materials; or (e) one or more
breaches by Licensee of any or all of its representations or
warranties hereunder;
(ii) obtain and maintain, at Licensee's own expense, product
liability insurance satisfactory to Licensor in the minimum amount
of U.S. Dollars ($ ) of primary and umbrella
coverage from one or more insurance companies, each with a Best's
rating of "A" (or better), and qualified to transact business in the
Territory (each such insurance policy shall name each of the
Indemnitees as additional insureds by reason of the indemnity
contained in Paragraph 2.m.(i) hereof and shall evidence the
insurer's agreement that such insurance shall not be amended,
canceled, terminated or
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permitted to lapse without thirty (30) days' prior written notice
to Licensor), and provide Licensor with a certificate of such
insurance upon execution of this Agreement by Licensee and on each
anniversary date of the grant or issuance of each such policy during
the Term and the Sell-Off Period evidencing that each such policy
has not been altered with respect to the Indemnitees in any way
whatsoever nor permitted to lapse for any reason, and evidencing the
payment of premium of each such policy; and
(iii) cause each such policy to be in full force and effect
prior to the commencement of any design, manufacture, advertising,
promotion, sale, distribution or dealing with any or all of the
Products whatsoever. Failure by Licensee to obtain the required
insurance prior to such commencement or failure by Licensee to
adequately maintain such insurance during the Term and the Sell-Off
Period shall be an incurable default by Licensee under this
Agreement.
n. Advertising Expenditures: In addition to all other amounts or
payments due from Licensee under this Agreement, and not to be credited
against any Guaranteed Royalties or Earned Royalties, Licensee agrees to
expend within each License Year for advertising and promotion in trade and
consumer media or either thereof (including without limitation newspapers,
magazines, television, radio and point-of-sale materials, but specifically
excluding displays and fixtures) not less than percent ( %) of Net
Sales for such License Year. Some or all of such sum for advertising and
promotion shall be paid to Licensor (hereinafter referred to as
"Advertising Contributions") as follows:
(i) Concurrently with the furnishing of each Statement
required under Paragraph 2.d.(i) hereof, Licensee shall remit to
Licensor for use in Licensor's advertising and promotion pool an
amount equal to percent ( %) of Net Sales for the time period
covered by such Statement, which amount shall be shown on each such
Statement and credited against Licensee's annual advertising and
promotion expenditures required herein; and
(ii) If the Statement for the last License Quarter of a
License Year shows that such percent ( %) threshold has not
been reached, the difference between the amount actually spent and
the amount required to be spent must be remitted to Licensor for use
in Licensor's advertising and promotion pool with such Statement.
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3. ADDITIONAL COVENANTS OF THE PARTIES.
a. Reservation of Rights: All rights not expressly and specifically
granted herein to Licensee are reserved by Licensor.
b. Certain Sales:
(i) In the event Licensor during the Term chooses to exercise
some or all of Licensor's rights pursuant to Paragraph 1.a.(ii)(d)
hereof, Licensee, if requested to do so by Licensor, will sell to
Licensor and its licensee(s) or either thereof any or all of the
Products at the best prices and terms given to other customers of
the Products ordering substantially the same quantities of similar
merchandise from Licensee.
(ii) In the event of any such sale of the Products by Licensee
to Licensor, Licensee shall ship or deliver such Products either
directly to Licensor, at Licensor's expense, or, as Licensor may
direct, to any other individual(s), entity or entities. Any or all
such sales of the Products by Licensee to Licensor shall be at the
prices described in Paragraph 3.b.(i) hereof, less, at Licensee's
election, applicable Earned Royalties; provided that, if Licensor
makes such election, Licensee will not have to pay Earned Royalties
on such sale(s). Licensee will, however, include such sale(s) in the
computation of Net Sales for the limited purpose of calculating
Minimum Net Sales. Licensee shall bill Licensor and its licensee(s)
or either thereof in accordance with Licensee's normal billing
procedures for all such Products shipped or delivered.
4. TITLE AND PROTECTION.
a. Indemnification by Licensor: Licensor represents and warrants
that: (i) it is the owner of the Trademarks; (ii) the Trademarks are
valid; and (iii) the Trademarks are, to the best of Licensor's knowledge,
free from any claim by any third party that would unreasonably interfere
with the rights granted to Licensee under this Agreement. Licensor shall
indemnify, defend and hold harmless Licensee, its subsidiaries and
affiliates, their respective shareholders and the agents, officers,
directors and employees of each against and from all claims or suits
(provided prompt notice of each such claim or suit which comes to the
attention of Licensee is given to Licensor by Licensee) arising solely and
directly out of the authorized use of the Trademarks on or in connection
with the Products by Licensee in the Territory, but in no event shall such
indemnification include consequential damages, including, but not limited
to compensation or reimbursement for loss of prospective profits,
anticipated sales or other losses occasioned by termination of this
Agreement or any other reason(s). Licensor shall have the option to settle
or to
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<PAGE>
undertake and conduct the defense of any such claim or suit. Licensee may,
through counsel of Licensee's own choice and at its own expense,
participate in any such claim or suit, but in such event Licensor shall
have sole and exclusive control over such defense, and Licensor's
decisions with respect thereto shall govern and control. Licensee
expressly covenants that no discussions by Licensee whatsoever with any
and all claimants and litigants, no compromise or settlement by Licensee
of any claim or suit and no negotiations by Licensee with respect to any
compromise or settlement shall be had, made or entered into without the
prior written approval of Licensor.
b. Enforcement: Licensee shall promptly notify Licensor in writing
of each actual, suspected or apparent infringement or imitation of the
Trademarks or the Materials or either thereof that comes to the attention
of Licensee. Licensor shall take such action in regard to such
infringement or imitation as Licensor, in its sole and absolute judgment,
deems to be appropriate. Licensor shall, in its sole and absolute
discretion, decide whether to assert any claim or undertake or conduct any
suit with respect to such infringement or imitation, but Licensee shall,
upon receipt of notice from Licensor and pursuant to Licensor's
instructions, on behalf of Licensor, assert any such claim or handle,
undertake and conduct any such suit at Licensor's expense in the name of
Licensor or Licensee or in both names as Licensor may direct. Licensee
expressly covenants that no discussions whatsoever with the infringing or
imitating party or parties, no compromise or settlement of any such claim
or suit and no negotiations with respect to any compromise or settlement
of any such claim or suit shall be had, made or entered into without the
prior written approval of Licensor. Licensee may share in as much as
percent ( %) of any damage recovery or settlement obtained by Licensor or
on Licensor's behalf by Licensee as a result of any such claim or suit
only if Licensee notified Licensor upon the initiation of such claim or
suit that Licensee desires to participate financially in such claim or
suit by contributing to the payment of the costs and expenses thereof and
only in an amount that shall bear the same ratio to the damage recovery or
settlement as the amount of Licensee's financial participation permitted
by Licensor bears to the total costs and expenses incurred in obtaining
such damage recovery or settlement. In no event shall Licensor be
responsible to Licensee for consequential damages that result from any
such infringement or imitation.
5. RELATIONSHIP BETWEEN THE PARTIES.
a. No Joint Venture: Nothing herein contained shall be construed to
place the parties hereto in the relationship of partners or joint
venturers, and Licensee shall have no power to obligate or bind any or all
of Licensor and its subsidiaries or affiliates in any manner whatsoever.
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<PAGE>
b. Assignment.
(i) Licensor, in entering into this Agreement, is relying
entirely upon Licensee's skills, reputation and personnel, including
without limitation its officers, managers, directors and
shareholders. This Agreement and all rights, duties and obligations
hereunder are personal to Licensee and shall not, without the prior
consent of Licensor (which may be given or withheld in the sole
discretion of Licensor), be assigned, delegated, sold, transferred,
leased, mortgaged or otherwise encumbered by Licensee or by
operation of law. Any attempt to do so without such consent shall be
void and shall constitute an incurable default under this Agreement.
If Licensor in its reasonable discretion believes that any change(s)
in any or all of the officers, managers, directors and shareholders
of Licensee has materially interfere with or materially and
adversely affect Licensee's performance hereunder or the
relationship between the parties hereto, Licensor may deem such
change(s) to be a default under this Agreement and shall so notify
Licensee. The consent of Licensor to any such assignment(s),
delegation(s), sale(s), transfer(s), lease(s), mortgage(s), other
encumbrance(s) or change(s) shall not be deemed to be consent to any
subsequent assignment(s), delegation(s), sale(s), transfer(s),
lease(s), mortgage(s), other encumbrance(s) or change(s).
(ii) Licensor may assign this Agreement or assign or delegate
any or all of its rights, duties and obligations hereunder to any of
its subsidiaries or affiliates or to any individual(s), entity or
entities.
6. SUBLICENSING. Licensee may not, without the prior written approval of
Licensor, whose discretion shall be final and absolute, enter into any
sublicense agreement(s) or grant any sublicense(s) for any or all of the rights
or obligations of Licensee under the License or this Agreement. The consent of
Licensor to any sublicense agreement(s) or sublicense(s) shall not be deemed to
be a consent to any subsequent sublicense agreement(s) or sublicense(s).
7. DEFAULTS AND RIGHTS OF TERMINATION.
a. Defaults and Right to Cure:
(i) Except as otherwise provided in this Agreement, if
Licensee shall violate any of the terms or conditions hereof or
default on any of its duties, obligations or warranties hereunder,
Licensor shall have the right and option, but not the duty, to
terminate the License and this Agreement upon thirty (30) days'
prior written notice, but no neglect or failure to serve such notice
shall be deemed to be a waiver of any such violation or default.
Such termination shall become effective unless
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<PAGE>
such violation or default described in such notice shall be
materially remedied to the satisfaction of Licensor within such
thirty (30) day period.
(ii) Notwithstanding the provisions of Paragraph 7.a.(i)
hereof, if such violation or default: (a) is of a kind that a remedy
or cure cannot effectively restore the prior circumstances; or (b)
is described in this Agreement as an incurable default, then the
License and this Agreement shall terminate upon receipt by Licensee
of written notice thereof without any period of remedy or cure
whatsoever. The termination of the License and this Agreement shall
be without prejudice to any rights that Licensor otherwise has
against Licensee under this Agreement or under law.
b. Bankruptcy or Assignment for Creditors, Business Discontinuance:
If: (i) Licensee files a petition in bankruptcy or is adjudicated a
bankrupt; (ii) a petition in bankruptcy is filed against Licensee; (iii)
Licensee shall become insolvent or shall make or agree to make an
assignment for the benefit of creditors or an arrangement pursuant to any
bankruptcy law; (iv) Licensee discontinues business; (v) Licensee receives
a qualified opinion from its independent auditor regarding Licensee's
financial statements or an opinion stating that Licensee's financial
situation raises substantial doubt about Licensee's ability to continue as
a going concern (or the equivalent of such an opinion); or (vi) a receiver
shall be appointed for Licensee, the License and this Agreement shall
automatically terminate without the necessity of any notice whatsoever. If
the License and this Agreement are so terminated, any and all of Licensee
and its receivers, representatives, trustees, agents, administrators,
successors and assigns shall have no right to sell or in any way deal with
any or all of the Products and the Materials, except with the special
prior written consent and under the instructions of Licensor that it or
they shall be obligated to follow.
c. Loss of Trademark Rights: If Licensee's right to use any or all
of the Trademarks is adjudged illegal, invalid or restricted and such
adjudication has become final and non-appealable or Licensor in its sole
discretion chooses not to appeal therefrom, or if a settlement agreement
is entered into by Licensor that prohibits or restricts Licensor's or
Licensee's right(s) to use the Trademarks, the License and this Agreement
shall automatically terminate without the necessity of any notice
whatsoever as of the date such adjudication becomes final and
non-appealable, the Licensor makes such choice or the execution and
delivery of such settlement agreement.
d. Impossible Performance: Licensee and Licensor shall be released
from their respective duties and obligations under this Agreement, and the
License and this Agreement shall terminate, if governmental regulations or
other causes arising
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<PAGE>
out of a state of national emergency or war, or any other similar cause(s)
beyond the control of the parties hereto, shall render performance
hereunder impossible. Either party hereto shall so notify the other in
writing of any such cause(s) and of its desire to be released, and upon
receipt by the other of such notice, the License and this Agreement shall
terminate and all amounts owed under this Agreement (including without
limitation all Earned Royalties and Advertising Contributions on sales of
the Products theretofore made) shall become immediately due and payable.
8. EXPIRATION OR TERMINATION.
a. Effect of Expiration or Termination: Upon and after the
expiration or termination of the License and this Agreement, all rights
granted to Licensee under this Agreement shall immediately revert to
Licensor. Licensee will refrain from any further use of the Trademarks or
any further reference to anything similar to the Trademarks (including,
but not limited to, words, devices, designs and symbols) or in any way
associated with any or all of the Products, Licensor and its subsidiaries
or affiliates, except with the prior written consent of Licensor or as
expressly provided in Paragraph 8.d. hereof.
b. Reserved Rights: The expiration or termination of the License and
this Agreement shall not: (i) relieve Licensor or Licensee, respectively,
of any obligations incurred prior or subsequent to such expiration or
termination or (ii) impair or prejudice any of the rights of Licensor or
Licensee, respectively, accruing prior or subsequent thereto as provided
in this Agreement. Upon termination of the License and this Agreement
pursuant to Paragraph 7.c. or 7.d. hereof, Guaranteed Royalties for the
then current License Year shall be prorated based on the ratio that the
number of days in such License Year prior to termination bears to the
number of days in the License Year had the License and this Agreement not
been terminated. Earned Royalties due for such License Year shall be the
excess of Earned Royalties over such prorated Guaranteed Royalties. Any
overpayment of Guaranteed Royalties or overpayment or underpayment of
Earned Royalties based on such proration shall be adjusted by the parties
hereto in accordance with Paragraph 2.f. hereof.
c. Inventory: Not more than ninety (90), but not less than thirty
(30) days prior to the expiration of the Term, or no later than Ten (10)
days after (i) receipt by Licensee of notice of termination or (ii) the
happening of any event that terminates the License and this Agreement
where no such notice is required, Licensee shall furnish to Licensor a
complete and accurate statement signed by the Chief Financial Officer
of Licensee showing the number and description of each of the Products in
work in process and in finished goods inventories and the location(s)
thereof. Licensor and its nominees, employees, agents and representatives
shall have the right to
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<PAGE>
conduct a physical inspection to ascertain or verify the presence of such
inventories and the accuracy of such statement. Any refusal by Licensee to
submit to such inspection shall forfeit Licensee's right to complete work
in process and to sell finished goods inventory pursuant to Paragraph 8.d.
hereof, and Licensor shall retain all other legal and equitable rights it
has in the circumstances, which rights are hereby specifically reserved.
d. Continued Sales After Expiration or Termination: Except as
provided in Paragraph 8.c. hereof and so long as Licensee is not in
arrears in the payment of all amounts due to Licensor, upon the expiration
of the License and this Agreement or if the License and this Agreement are
terminated pursuant to any paragraph of this Agreement except Paragraphs
7.a.(ii), 7.b. or 7.c. hereof, Licensee may for a period of ninety (90)
days after the Expiration Date or the effective date of termination
(hereinafter referred to as the "Sell-Off Period") sell through Licensee's
existing, recognized network of customers, all of the Products (in
finished form) that have been approved by Licensor and that were in work
in process inventory or in finished goods inventory on the Expiration Date
or at the time such notice of termination is received. In the event that
Licensee is unable to cancel a work in process order, Licensee shall be
given a ninety (90) day period, after receipt of the work in process
Products within which to sell those work in process Products. Licensee
shall pay Earned Royalties and furnish Statements with respect to the
Sell-Off Period (including any additional period pursuant to a
non-cancelable work in process order) and otherwise comply with the terms
and conditions of this Agreement as though the License and this Agreement
were still in effect. It is expressly understood and agreed by Licensee
that the Sell-Off Period shall be: (i) non-exclusive consistent with
Paragraph 8.f. hereof and (ii) considered a separate accounting period for
the purpose of computing Earned Royalties due to Licensor for sales during
such period, and such sales shall not be applied against any Guaranteed
Royalties due or payable prior to the Sell-Off Period. If the License and
this Agreement are terminated for failure of Licensee to make any
payment(s) due under this Agreement or pursuant to Paragraphs 7.a.(ii),
7.b. or 7.c. hereof, Licensee shall forfeit any and all rights to use the
Sell-Off Period and shall be obligated to turn over to Licensor all
Products in process or on hand at the time of termination.
e. Equitable Relief and Legal Fees:
(i) Subject to Paragraph 8.d. hereof, Licensee hereby
acknowledges that its failure to cease the design, manufacture,
advertising, promotion, sale or distribution of the Products and the
Materials upon the expiration or termination of this Agreement will
result in irreparable harm to the Trademarks, Licensor and the
rights of subsequent licensee(s) for which there is no adequate
remedy at law. Accordingly, in the event of such failure
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<PAGE>
or in the event of any violation or default by Licensee under this
Agreement (after giving effect to the provisions of Paragraph
7.a.(i) hereof), Licensor shall be entitled to equitable relief
without the necessity of posting bond by way of any or all of
temporary and permanent injunctions and such other relief as any
court of competent jurisdiction may deem just and proper. In this
regard, Licensee hereby consents to the judgment of temporary and
permanent injunctions in favor of Licensor in order to give effect
to this Paragraph 8.e.(i).
(ii) In the event either party hereto files any action against
the other to enforce any of the provisions of this Agreement or to
secure or protect such party's rights under this Agreement, such
party shall be entitled to recover, in any judgment in its favor
entered therein, the attorneys' fees and litigation expenses of such
party, together with such court costs and damages as are provided by
law.
f. Continuity of Sales: In order to enable Licensor to maintain
continuity of sales of the Products upon expiration or termination of this
Agreement, Licensor shall have the right, notwithstanding anything to the
contrary contained in Paragraph 1.a. hereof, to authorize one or more
individuals or entities to design, manufacture, advertise, promote, sell
and distribute the Products in the Territory for four (4) months preceding
the expiration of this Agreement or from the sooner of the time that
notice is received by Licensee of termination of this Agreement or when
this Agreement is terminated. Such individual(s), entity or entities
shall not, however, be authorized to ship to its or their customers any
or all of the Products until after this Agreement has expired or has been
terminated, but may ship the Products to such customers during the
Sell-Off Period, if any.
g. Termination Fee: Notwithstanding anything to the contrary in this
Agreement, if Licensor terminates this Agreement as a result of a default
by Licensee, Licensee shall pay to Licensor as a termination fee no later
than ten (10) days after the date of such termination all outstanding
Guaranteed Royalties required to be paid during the six (6) month period
following termination in addition to all Earned Royalties and Advertising
Contributions due through the effective date of termination.
9. NOTICES.
a. Effectiveness: Unless otherwise expressly indicated in this
Agreement, each notice, request, approval, consent, payment and Statement
(hereinafter referred to as a "Submission") specifically provided for in
this Agreement shall be in writing and shall be considered effective or
received the earliest of: (i) five (5) days after the date when such
Submission is mailed by certified or registered mail with postage prepaid
to the party hereto at the address(es) set
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forth below; (ii) two (2) business days after the date (a) when such
Submission is sent by express courier service addressed to such party at
such address(es) or (b), except for payments, when such Submission is sent
by facsimile addressed to such party at such address(es) and the sender
thereof requests and receives written confirmation from such party that
such Submission has been received and is legible; or (iii) when such
Submission is actually received by such party at such address(es):
To Licensor: 730 Fifth Avenue
New York, NY 10019
Attention: Betsy Kain
Facsimile: 212-957-2950
Telephone: 212-261-5000
With a copy to: General Counsel
At the address specified in Paragraph
S.1. of the Schedule
To Licensee: The address specified in
Paragraph S.2. of the Schedule
Attention: Barry Budilov
Telephone: 215-925-1551
Facsimile: 215-925-0204
b. Address Change: Notwithstanding the provisions of Paragraph 9.a.
hereof, each party hereto may give written notice to the other party of
some other address(es) to which Submissions shall be sent, in which event
such Submissions to such party subsequently shall be sent to such
address(es).
10. SEVERABILITY. Each provision of this Agreement shall be severable. If,
for any reason, any provision(s) herein is or are finally determined to be
invalid and contrary to, or in conflict with, any existing or future law or
regulation of a court or agency having valid jurisdiction, such determination
shall not impair the operation or affect the remaining provisions of this
Agreement, and such remaining provisions will continue to be given full force
and effect and bind the parties hereto. Each invalid provision shall be
curtailed only to the extent necessary to bring it within the requirements of
such law or regulation.
11. CONSENTS AND APPROVALS. If Licensor fails or refuses to grant to
Licensee any request(s), consent(s) or approval(s), Licensor may, but shall not
be required to, give one or more of the reason(s) thereof or, but Licensor shall
not be liable for any events or circumstances that arise as a result of such
failure or refusal.
12. APPLICABLE LAW. This Agreement shall be governed by and interpreted
under the laws of the State of Illinois without regard to its conflicts of laws
provisions. Licensee hereby submits to personal jurisdiction in Cook County,
Illinois. The parties hereto
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<PAGE>
agree that any and all disputes arising out of or relating in any way to this
Agreement shall be litigated only in courts sitting in Cook County, Illinois.
13. NO BROKER. Licensee warrants and represents that Licensee used no
broker(s) in connection with the execution and delivery of this Agreement.
14. CONSTRUCTION. The headings used herein are for convenience only and
shall not be deemed to define, limit or construe the contents of any
provision(s) of this Agreement. The wording of this Agreement will be deemed to
be the wording chosen by the parties hereto to express their mutual intent, and
no rule of strict construction will be applied against any such party. The
Recitals and the Additional Terms and Conditions (contained in Exhibit C which
is attached hereto) shall be deemed to be part of this Agreement. This Agreement
may be executed in separate counterparts, each of which is deemed to be an
original, and all of which taken together constitute one and the same agreement.
15. SURVIVABILITY. Paragraphs 1.a.(ii), 2.a.(ii) through 2.a.(iv), 2.c.
through 2.g., 2.h.(iv) through 3.a., 3.b.(ii), 4.a., 5.a. and 7.a.(ii) through
17, the Schedule and Paragraphs 1. through 4. of Exhibit B of this Agreement
shall survive the expiration or termination of the License and this Agreement.
16. RIGHTS CUMULATIVE. The respective rights and remedies of the parties
hereto, whether herein specified or otherwise, shall be cumulative, and the
exercise of one or more of them shall not preclude the exercise of any or all
other rights and remedies each such party has hereunder or by law.
17. ENTIRE AGREEMENT. This Agreement (with the Schedule and Exhibits A
through C) represents the entire understanding of the parties hereto. None of
the terms of this Agreement can be waived or modified except by an express
agreement in writing signed by the parties hereto. There are no representations,
promises, warranties, covenants or undertakings other than those contained in
this Agreement. No custom or practice of the parties hereto at variance with the
terms hereof shall constitute a waiver of Licensor's right to demand exact
compliance with any of the terms herein at any time. The failure of either party
hereto to enforce, or the delay by either party hereto in enforcing, any or all
of its rights under this Agreement shall not be deemed as constituting a waiver
or a modification thereof, and either party hereto may, within the time provided
by applicable law, commence appropriate proceedings to enforce any or all of
such rights. Except as expressly provided in this Agreement, no individual(s),
entity or entities other than Licensee and Licensor shall be deemed to have
acquired any rights by reason of anything contained in this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending this Agreement to be
effective as of the Commencement Date, have caused this Agreement to be executed
by the duly authorized representative of each.
LIFESTYLE BRANDS, LTD.
(LICENSOR)
By: /s/ David Batchelor
-----------------------------
David H.L. Batchelor
Senior Vice President
Product Marketing
Date: Oct. 3, 1995
DIPLOMAT-AMBASSADOR INC.
(LICENSEE)
By: /s/ Barry Budilov
-----------------------------
Title: President
Date: 11/1/96
<PAGE>
Exhibit 10.21
INDEX TO DIPLOMAT-AMBASSADOR INC.
PRODUCT LICENSE AGREEMENT
THE SCHEDULE
PARAGRAPH PAGE NO.
- --------- --------
1. GRANT OF LICENSE
a. Grant 1-2
b. Term 2
c. License Year and License Quarter 2
d. Territory 2
e. Minimum Net Sales 2-3
2. COVENANTS OF LICENSEE
a. Use 3-4
b. Best Efforts 4-5
c. Royalties
(i) Guaranteed Royalties 5
(ii) Earned Royalties 5
(iii) Interest 5
d. Statements and Payments 5-6
e. Records and Audit 6-7
f. Expenses of Conducting Examinations 7
g. Product Quality 7-8
h. Approval of Products and the Materials 8-9
i. Title and Protection and Preservation
of Trademarks and Copyrights 10-11
j. Right to Subcontract, Licensee
Financial Statements and Lists
of Sources and Customers 11-12
k. Inventory 12
l. Trademarks and Non-Competitive Brands 12-13
m. Indemnification and Product
Liability Insurance 13-14
n. Advertising Expenditures 14
3. ADDITIONAL COVENANTS OF THE PARTIES
a. Reservation of Rights 14
b. Certain Sales 15
4. TITLE AND PROTECTION
a. Indemnification by Licensor 15-16
b. Enforcement 16
5. RELATIONSHIP BETWEEN THE PARTIES
a. No Joint Venture 16
b. Assignment 16-17
<PAGE>
INDEX TO DIPLOMAT-AMBASSADOR INC.
PRODUCT LICENSE AGREEMENT
(Continued)
6. SUBLICENSING 17
7. DEFAULTS AND RIGHTS OF TERMINATION
a. Defaults and Right to Cure 17
b. Bankruptcy or Assignment for
Creditors, Business Discontinuance 18
c. Loss of Trademark Rights 18
d. Impossible Performance 18
8. EXPIRATION OR TERMINATION
a. Effect of Expiration or Termination 18-19
b. Reserved Rights 19
c. Inventory 19
d. Continued Sales After Expiration
or Termination 19-20
e. Equitable Relief and Legal Fees 20
f. Continuity of Sales 20-21
g. Termination Fee 21
9. NOTICES
a. Effectiveness 21-22
b. Address Change 22
10. SEVERABILITY 22
11. CONSENTS AND APPROVALS 22
12. APPLICABLE LAW 22
13. NO BROKER 22
14. CONSTRUCTION 22
15. SURVIVABILITY 22
16. RIGHTS CUMULATIVE 23
17. ENTIRE AGREEMENT 23
<PAGE>
THE SCHEDULE referred to in the Agreement made as of June 14, 1995.
S.1 LICENSOR: LIFESTYLE BRANDS, LTD.
680 North Lake Shore Drive
Chicago, IL 60611
S.2. LICENSEE: DIPLOMAT-AMBASSADOR INC.
1010 Arch Street, Third Floor
Philadelphia, PA 19107
Attn: Barry Budilov
Phone: 215-925-1551
Fax: 215-925-0204
S.3. THE TRADEMARKS: SARAH COVENTRY; BUTTERFLY DESIGN;
SARAH COVENTRY AMERICA; FASHION
CHANGES, STYLE DOESN'T
S.4. THE TYPE OF LICENSE: Exclusive
S.5. THE USE OF THE TRADEMARKS: Design, manufacture, advertise,
promote, sell and distribute to retail
stores located in the Territory or to
wholesalers which will sell the
Products to and only to retail stores
located in the Territory.
S.6. THE PRODUCTS: Ophthalmic frames and cases
S.7. THE TERRITORY: United States and Canada
S.8. THE COMMENCEMENT DATE: July 1, 1995
S.9. THE EXPIRATION DATE: June 30, 1998
S.10. THE MINIMUM NET SALES (in United States Dollars):
License Year Amount
------------ ------
LY1 (7/1/95 - 6/30/96) $
LY2 (7/1/96 - 6/30/97) $
LY3 (7/1/97 - 6/30/98) $
<PAGE>
THE SCHEDULE (Continued)
S.11. GUARANTEED ROYALTIES (in United States Dollars):
License Year Amount
------------ ------
LY1 (7/1/95 - 6/30/96) $
LY2 (7/1/96 - 6/30/97) $
LY3 (7/1/97 - 6/30/98) $
S.12. EARNED ROYALTIES:
percent ( %) of Net Sales (as defined in Paragraph 2.d.(ii) and
subject to the provisions of Paragraph 3.b.(ii) of the Agreement) of the
Products.
S.13. THE ADDRESS WHERE BOOKS KEPT: See Paragraph S.2 above.
LIFESTYLE BRANDS, LTD.
(LICENSOR)
By: /s/ David Batchelor
---------------------
David H.L. Batchelor
Senior Vice President
Product Marketing
Date: October 3, 1995
DIPLOMAT-AMBASSADOR INC.
(LICENSEE)
By: /s/ Barry Budilov
---------------------
Title: President
Date: 11/1/96
<PAGE>
LICENSE AGREEMENT
This Agreement is made as of the 14th day of June 1995, by and between the
corporation described in Paragraph S.1. of the Schedule attached hereto and made
a part hereof (hereinafter referred to as "Licensor") and the corporation
described in Paragraph S.2. of the Schedule (hereinafter referred to as
"Licensee").
RECITALS
WHEREAS, Licensor has certain rights in and to the trademark SARAH
COVENTRY and other trademarks identified in Paragraph S.3. of the Schedule
(hereinafter collectively referred to as the "Trademarks") ;
WHEREAS, Licensee recognizes that the Trademarks have acquired notoriety
and goodwill with the general public by virtue of their use in connection with
home party plan sales of jewelry and have since gained further goodwill and
notoriety through the manufacture, advertising, promotion, sale and distribution
of a broad range of consumer products, including, but not limited to, jewelry,
clothing, leather goods and personal health and home articles and accessories;
WHEREAS, the parties hereto desire that Licensor grant to Licensee a
license to use the Trademarks in the design, manufacture, advertising,
promotion, sale and distribution of the "Products" (as defined in Paragraph
1.a.(i) hereof);
NOW, THEREFORE, in consideration of the mutual promises herein contained,
it is mutually agreed as follows:
1. GRANT OF LICENSE.
a. Grant:
(i) Upon and subject to the terms and conditions hereinafter
set forth, Licensor hereby grants to Licensee, and Licensee hereby
accepts, the right, license and privilege specified in Paragraph
S.4. of the Schedule to use the Trademarks in connection with, and
only with, the use specified in Paragraph S.5. of the Schedule on
and in connection with specifically designated and approved articles
of merchandise specified in Paragraph S.6. of the Schedule
(hereinafter collectively referred to as the "Products") in the
territory specified in Paragraph S.7. of the Schedule (hereinafter
referred to as the "Territory"). Such right, license and privilege
is hereinafter referred to as the "License." It is understood and
agreed that while the manufacture of the Products may take place
outside the Territory, none of the Products may be advertised,
promoted, sold or distributed outside the Territory by Licensee.
(ii) Nothing contained in this Agreement shall prevent
Licensor from doing any or all of the following: (a) using or
granting one or more others the right or license to use the
Trademarks on or in connection with
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<PAGE>
the Products in any area of the world other than the Territory or on
or in connection with any services or goods other than the Products
in any or all area(s) of the world including the Territory; (b)
manufacturing or having manufactured in the Territory the Products
for sale outside the Territory; (c) producing or having produced
limited quantities of the Products to be used in the Territory
specifically for promotional and advertising purposes and not for
sale; and (d) retaining and exercising the exclusive rights hereby
reserved to Licensor to design, manufacture, advertise, promote,
sell and distribute and license the design, manufacture,
advertising, promotion, sale and distribution of any and all of the
Products in the Territory and elsewhere or either thereof through
direct marketing sales (including, but not limited to, direct mail,
catalog houses, home shopping programs, infomercials and the like),
premium sales, incentive sales and home party plan sales.
b. Term: The term of the License and this Agreement (hereinafter
referred to as the "Term") shall commence on the date specified in
Paragraph S.8. of the Schedule (hereinafter referred to as the
"Commencement Date") and shall expire at midnight Chicago time on the date
specified in Paragraph S.9. of the Schedule (hereinafter referred to as
the "Expiration Date"), unless sooner terminated by operation of law or as
provided in this Agreement.
c. License Year and License Quarter:
(i) For all purposes under this Agreement, a "License Year"
shall be twelve (12) consecutive calendar months commencing on the
Commencement Date and ending at midnight Chicago time on the day
preceding the anniversary of the Commencement Date and each twelve
(12) month period thereafter, and if the expiration or termination
of the License and this Agreement is effective other than at the end
of such twelve (12) month period, then the final period of less than
twelve (12) months ending on the effective date of such expiration
or termination shall be deemed to be a License Year.
(ii) For all purposes under this Agreement, a "License
Quarter" shall be the first (1st) and each succeeding three (3)
month period of each License Year, and if the expiration or
termination of the License and this Agreement is effective other
than at the end of a License Year, then the final period of less
than three (3) months ending on the effective date of such
expiration or termination shall be deemed to be a License Quarter.
d. Territory: The License shall extend only to the Territory, and
the use by Licensee of the Trademarks shall be confined to the Territory.
e. Minimum Net Sales: Notwithstanding anything in this Agreement to
the contrary, if Licensee's Net Sales (as defined
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in Paragraph 2.d.(ii) hereof) in any License Year are less than those specified
in Paragraph S.10. of the Schedule for such License Year (hereinafter referred
to as the "Minimum Net Sales"), then Licensor shall have the right to either:
(i) declare the License to be non-exclusive, thereby giving Licensor the rights
to design, manufacture, advertise, promote, sell and distribute the Products in
competition with Licensee or otherwise grant any or all of such rights to one or
more other parties or (ii) terminate the License and this Agreement by deeming
the failure to attain the Minimum Net Sales to be an incurable default under
this Agreement. Such declaration or termination: (a) shall be effective upon the
receipt by Licensee of written notice from Licensor no later than thirty (30)
days after Licensor's receipt of the Statement (as defined in Paragraph 2.d.(i)
hereof) evidencing such shortfall and (b) shall have no effect upon the amounts
due and payable to Licensor for periods prior to or after such declaration or
termination.
2. COVENANTS OF LICENSEE.
a. Use:
(i) Subject to Licensor's prior approval as hereinafter required,
Licensee shall commence the design, manufacture, advertising, promotion,
sale and distribution of or for the Products as soon as practicable after
the Commencement Date, but in no event later than August 1, 1995. If
Licensee fails to do so by such date, Licensor may treat such failure as
an incurable default under this Agreement. In the event during any License
Year, Licensee has not on a regular and ongoing basis sold or distributed
one or more of the Products within one or more categories of the Products
under Paragraph S.6. of the Schedule, Licensor shall have the right to
delete any of such Products or such categories from the Schedule upon not
less than thirty (30) days' prior written notice to Licensee.
(ii) Licensee shall not cause or authorize any use of the Trademarks
in any area of the world outside the Territory and shall not knowingly
manufacture, sell or otherwise deal with or distribute any of the Products
on behalf of or to any individual(s), entity or entities that Licensee
believes or has reason to believe intends or intend or is or are likely to
sell, deal with or distribute any of the Products in any way outside the
Territory. Licensee shall, upon receipt of notice from Licensor,
immediately and permanently cease supplying any or all of the Products to
the individual(s), entity or entities named in such notice as one or more
of those that directly or indirectly sell, deal with or distribute any or
all of the Products outside the Territory.
(iii) Licensee warrants and represents that it has and will continue
to have throughout the Term and the Sell-Off Period (as defined in
Paragraph 8.d. hereof) the legal right and authority to enter into this
Agreement
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and to assume and perform its duties and obligations hereunder and that
there is or are no, and Licensee shall not enter into during the Term and
the Sell-Off Period any, contract(s), agreement(s) or understanding(s)
with any individual(s), entity or entities which would in any way restrict
or prevent Licensee from the performance of its duties and obligations
under this Agreement.
(iv) Licensee shall be responsible for obtaining, at its own
expense, any and all licenses, permits, approvals (including governmental
and all other licenses, permits and approvals) necessary for Licensee to:
(a) design, manufacture, advertise, promote, sell and distribute the
Products; (b) pay Guaranteed Royalties (as defined in Paragraph 2.c.(i)
hereof), Earned Royalties (as defined in Paragraph 2.c.(ii) hereof),
Advertising Contributions (as defined in Paragraph 2.n. hereof) and taxes;
and (c) fulfill any and all other duties and obligations and exercise the
rights of Licensee under this Agreement. In the event Licensee is unable,
for any reason, to obtain prior to the Commencement Date or maintain
throughout the Term all of such licenses, permits or approvals, such
inability shall be an incurable default under this Agreement.
b. Best Efforts: Licensee shall, throughout the Term and the Sell-Off
Period, constantly use its best effort, in the advertising, promoting, selling
and distributing and in all other dealing with or disposal of the Products to
protect the good name and goodwill associated with the Trademarks and Licensor
and to obtain the greatest Net Sales throughout the entire Territory and the
entire Term and the Sell-Off Period. Licensee acknowledges and agrees that the
sale of the Products in certain types of stores can negatively affect the
reputation and the value of the Trademarks, as some types of stores are
perceived by the public as having lower quality products than other types of
stores regardless of whether the products or their prices are the same. Licensee
agrees that it will use its best efforts to sell and distribute the Products
only to those stores that are generally perceived by the public as good quality
stores by virtue of their reputations for quality products and by their
providing certain service amenities associated with good quality stores, which
may include without limitation the availability of any or all of the following:
customer service desks; knowledgeable, regular, full-time service
representatives; and provision for the return of products. Licensee and Licensor
agree that certain deep discount chains and other similar channels are generally
perceived by the public as having lower quality products and will therefore not
be considered acceptable channels of sale and distribution of the Products under
this Agreement without Licensor's written approval. Licensor and Licensee agree
to reasonably attempt to settle all differences of opinion as to whether or not
a specific store or chain of stores is an acceptable channel for the sale and
distribution of the Products, but Licensor's decisions in this matter shall
govern and control. Except as provided in Paragraph 2.n. hereof, Licensee
shall be responsible for and shall assume and pay for
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all costs and expenses related to Licensee's design, manufacture, advertising,
promotion, sale and distribution of the Products.
c. Royalties:
(i) Guaranteed Royalties: Licensee will pay to Licensor or its
designee(s) guaranteed minimum royalties (hereinafter referred to as
"Guaranteed Royalties") in the amount and for each License Year specified
in Paragraph S.11 of the Schedule. Guaranteed Royalties for each such
License Year shall be paid in four (4) equal installments and each such
installment shall be due on the first (1st) day of each License Quarter of
each such License Year. Under no circumstances whatsoever will Licensor
return to Licensee all or any part(s) of Guaranteed Royalties, except as
provided in Paragraph 8.b. hereof.
(ii) Earned Royalties: Licensee shall pay to Licensor or its
designee(s) royalties (hereinafter referred to as "Earned Royalties") in
the amount equal to the amount calculated according to Paragraph S.12. of
the Schedule, but only to the extent that for each License Year such
calculated amount exceeds Guaranteed Royalties for such License Year.
Earned Royalties shall be payable in accordance with the terms and
conditions of Paragraph 2.d. hereof.
(iii) Interest: Each sum, including, but not limited to, Guaranteed
Royalties and Earned Royalties, that shall not be paid on the due date by
Licensee shall bear interest from such due date until the date on which
such sum is paid in full at an amount equal to the lesser of
percent ( %) per annum or the highest percentage rate allowed by law.
d. Statements and Payments:
(i) Within forty-five (45) days after each License Quarter or the
conclusion of the Sell-Off Period, Licensee shall furnish to Licensor or
its designee a complete and accurate statement in a format acceptable to
Licensor and certified to be true by the Chief Financial Officer of
Licensee (hereinafter referred to as the "Statement") showing for such
License Quarter and the License Year through such period or for the
Sell-Off Period: (a) a listing of Licensee's accounts in the Territory and
the units and description of all of the Products sold and distributed or
otherwise disposed of by Licensee; (b) the computations of Net Sales on
all such sales; (c) the computation of Earned Royalties and the amount of
Earned Royalties due and payable; and (d) the advertising and promotion
expenditures made by Licensee pursuant to Paragraph 2.n. hereof and the
details of all such expenditures, supported by copies of vouchers and
copies of all advertising for or relating to the period covered by such
Statement. When, during any License
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Year the amount of Guaranteed Royalties for such License Year has been
exceeded by the amount calculated according to Paragraph S.12. of the
Schedule for such License Year, Licensee shall commence payment of Earned
Royalties. Licensee shall pay all accrued and unpaid Earned Royalties by
remittance accompanying each of the Statements.
(ii) As used in this Agreement, the term "Net Sales" means the
invoice price charged by Licensee for the Products less (x) refunds,
credits and allowances actually made or allowed to customers for returned
Products, (y) customary trade discounts (including anticipations) afforded
to and actually taken by customers against payment for the Products and
(z) value added tax assessed on sales (only where applicable).
(iii) In the event the percentage of returns of Products in any
License Year exceeds percent ( %) of Net Sales for such License
Year, then Licensor may elect to treat such an occurrence as an incurable
default by Licensee under this Agreement.
(iv) Except as otherwise specifically provided in this Agreement, if
Licensee sells any or all of the Products to any individual(s), entity or
entities in whole or in part controlled by Licensee, the invoice price
used to determine Net Sales hereunder shall be the invoice price at which
the Products are resold by such individual or entity to an unrelated
customer in an arm's-length transaction.
e. Records and Audit: Licensee shall: (i) keep accurate books of account
and records (including but not limited to utilization of consecutively numbered
invoices which reconcile to the Statements and Licensee's general ledger)
covering all transactions relating to or arising out of the License and this
Agreement (which books and records shall be maintained separately from
Licensee's documentation relating to other items manufactured or sold by
Licensee) and (ii) permit Licensor or its nominees, employees, agents or
representatives to have full access to, to inspect such books and records at all
reasonable hours of the day, to conduct an examination of and to copy (at
Licensor's expense) all such books and records. Licensee shall maintain in good
order and condition all such books and records for a period of two (2) years
after the expiration or termination of the License and this Agreement or, in the
event of a dispute between the parties hereto, until such dispute is resolved,
whichever date is later, and such books and records shall be kept at the address
stated in Paragraph S.13. of the Schedule, except as such address may be
changed from time to time in accordance with Paragraph 9.b. hereof. Receipt or
acceptance by Licensor of any Statement furnished pursuant hereto or any sums
paid by Licensee hereunder shall not preclude Licensor from questioning the
correctness thereof at any time, and if one or more inconsistencies or mistakes
are discovered by Licensor in such Statement, it or they shall be rectified in
an amended
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Statement received by Licensor no later than ten (10) days after the date of
receipt by Licensee of notice of that which should be rectified.
f. Expenses of Conducting Examinations: If an inspection or examination
referred to in Paragraph 2.e. hereof discloses, or Licensor or Licensee
otherwise discovers, an underpayment of Earned Royalties and Advertising
Contributions or either thereof, the amount of such underpayment shall be paid
by Licensee to Licensor no later than thirty (30) days after receipt of notice
or knowledge thereof by Licensee. In the event of such an underpayment by
Licensee in excess of percent ( %) in any License Year, then Licensor may
elect to treat such occurrence as an incurable default by Licensee under this
Agreement within thirty (30) days of discovery. If such inspection or
examination: (i) discloses or Licensor or Licensee otherwise discovers an
overpayment of Earned Royalties and Advertising Contributions or either thereof
(or, pursuant to Paragraph 8.b. hereof, an overpayment of Guaranteed Royalties),
the amount of such overpayment shall be credited against future payment(s) of
any or all of the Guaranteed Royalties, Earned Royalties and Advertising
Contributions or, in the event of the expiration or termination of the License
and this Agreement and there is or are no such future payment(s), such amount
shall be paid by Licensor to Licensee no later than thirty (30) days after the
discovery thereof by Licensor, subject to Licensor's rights of setoff,
recoupment and counterclaim or (ii) reveals that for the period covered by such
inspection or examination there is an error of percent ( %) or more in the
Earned Royalties and Advertising Contributions or either thereof previously
reported on the Statement(s) as being due from Licensee, all expenses involved
in the conducting of such inspection or examination shall be borne by Licensee.
Licensee shall pay to Licensor the amount of such expenses no later than ten
(10) days after Licensee's receipt of Licensor's invoice therefor. If such error
is less than percent ( %), such expenses shall be borne by Licensor.
g. Product Quality: Licensee hereby warrants and agrees that the Products
designed, manufactured, advertised, promoted, sold or distributed under this
Agreement shall bear the Trademarks faithfully produced and shall meet the high
standards of quality, workmanship, material, design, size, color and style
established by Licensor in accordance with the terms and conditions of this
Agreement, including without limitation the Quality Standards attached hereto
and made a part of this Agreement as Exhibit A. Licensee will not knowingly or
negligently cause or authorize any or all of the Products not conforming to this
Agreement to be sold or distributed, as doing so may adversely affect Licensor's
goodwill in the Trademarks. All of the Products shall conform to and comply
with, in all respects, all federal, state and local laws, rules and regulations
governing the design, quality, labeling and safety of such Products. Licensee
shall not cause, condone or authorize: (i) the use of any substandard or
offensive materials in or in connection with any or all of the Products; (ii)
any violation of any federal, state or local
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law or regulation, including, but not limited to, provisions thereof imposing
advertising standards or requiring trade or content description of the Products;
or (iii) the use of the Trademarks or any other word(s), device(s) or symbol(s)
associated in any way with any or all of Licensor and its subsidiaries and
affiliates in connection with any product or activity that is not the subject of
the License and this Agreement.
h. Approval of Products and the Materials:
(i) Licensee understands and agrees that each of the Products and
other items bearing the Trademarks or intended for use in connection with
the Products (hereinafter collectively referred to as the "Materials")
must be approved in advance by Licensor. The Materials include, but are
not limited to, cartons, containers, labels, wrappers, packages and other
inner and outer packaging materials, fixtures, displays, artwork and
printing, advertising, sales, marketing and promotional materials.
Licensee shall, at its own expense, submit to Licensor or its designee(s)
for written approval, samples of each of the Products and the Materials at
each stage of development thereof, which shall include, but not be limited
to: (a) an initial sketch or photograph; (b) a sample prototype or
equivalent acceptable to Licensor; and (c) two (2) samples as actually
manufactured or produced in final form as intended to be sold and
distributed or either thereof by Licensee. Licensee must obtain Licensor's
written approval of each stage of development before proceeding to the
next stage, and in no event shall Licensee commence or permit the mass
manufacture, advertising, promotion, sale or distribution of any or all of
the Products or the Materials unless and until Licensee has received
Licensor's written approval of the samples provided pursuant to (c) of
this Paragraph. While Licensor shall have the sole and absolute discretion
to approve or withhold approval of any and all of the Products, the
Materials and sample(s) of either throughout each stage of development,
Licensor shall only withhold approval on the samples submitted pursuant to
(c) of this Paragraph because such samples do not conform to that or those
thing(s) previously approved. In the event Licensor fails to provide its
approval or disapproval of any or all things submitted to Licensor
pursuant to this Paragraph 2.h.(i) within fourteen (14) days of Licensor's
receipt thereof, Licensor shall be deemed to have disapproved of such
thing(s).
(ii) To ensure that each of the Products and the Materials are
constantly maintained in conformance with the previously approved samples
pursuant to Paragraph 2.h.(i) hereof, Licensee shall, within seven (7)
days of receipt of a request from Licensor, send or cause to be sent to
Licensor at Licensee's expense: (a) such actual samples requested by
Licensor of the Products and the Materials Licensee is using,
manufacturing, selling,
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distributing or otherwise disposing of and (b) a listing or revised
listing of each location where any of the Products and the Materials or
either thereof are designed, manufactured, stored or otherwise dealt with,
except to the extent such listing or revised listing duplicates currently
accurate information provided pursuant to Paragraph 2.j.(ii) hereof.
Licensor and its nominees, employees, agents and representatives shall
have the right to enter upon and inspect, at all reasonable hours of the
day and with reasonable notice, any and all such location(s) and to take,
without payment, such samples of any of the Products and the Materials as
Licensor reasonably requires for the purposes of such inspection.
(iii) If any of the Products or Materials sent or taken pursuant to
Paragraph 2.h.(ii) hereof or that otherwise come(s) to the attention of
Licensor does or do not conform in Licensor's sole reasonable opinion to
the previously approved samples, Licensor shall so notify Licensee in
writing, specifying in what respect such of the products or Materials is
or are unacceptable. Immediately upon receipt of such notice, Licensee
shall suspend all manufacture, sale and distribution of and shall obtain
back from Licensee's customers all such Products and Materials and shall
not resume the manufacture, sale or distribution thereof unless and until
Licensee has made all necessary changes to the satisfaction of Licensor
and has received Licensor's written reapproval of each of such Products
and Materials.
(iv) Except as otherwise specifically provided in this Agreement,
all of the Products and the Materials that are not approved by Licensor or
that are determined by Licensor to be non-conforming or unacceptable shall
not be sold, distributed or otherwise dealt with by Licensee. All such
Products and Materials shall be destroyed by Licensee with, if Licensor so
requests, an appropriate certificate of destruction furnished to Licensor.
(v) Except as provided in Paragraph 2.b.(iv) hereof, any and all
sale(s), distribution or use by Licensee of unapproved, non-conforming or
unacceptable Products or Materials shall not only constitute an incurable
default under the terms of this Agreement, but such Products or Materials
also shall be considered unlicensed and an infringement of Licensor's
proprietary rights, and Licensor shall have the right to bring legal
action against Licensee for any and all remedies available to Licensor in
addition to the remedies available under this Agreement.
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i. Title and Protection and Preservation of Trademarks and Copyrights:
(i) Licensee hereby acknowledges each of the following: the great
value of the goodwill associated with the Trademarks; the worldwide
recognition thereof; that the proprietary rights therein and goodwill
associated therewith are solely owned by and belong to Licensor; that the
Trademarks and other related words, devices, designs and symbols are
inherently distinctive or have secondary meaning firmly associated in the
mind of the general public with Licensor, its subsidiaries and affiliates
and its or their activities; and that all additional goodwill associated
with the Trademarks created through the use of such Trademarks by Licensee
shall inure to the sole benefit of Licensor. During and after the Term,
Licensee shall not:
(a) attack or question the validity of, or assist any
individual(s), entity or entities in attacking or questioning, the
title or any rights of or claimed by any or all of Licensor, its
subsidiaries and affiliates and their respective licensees and
sublicensees in and to the Trademarks or any other trademark(s),
copyright(s) or such other intellectual or intangible property or
properties associated or connected with any or all of Licensor, its
subsidiaries and affiliates, their publications, published material,
activities, licensees and sublicensees;
(b) directly or indirectly seek for itself, or assist any
third party or parties to use or acquire, any rights, proprietary or
otherwise, in any patent, trademark, copyright or such other
intellectual or intangible property so associated or connected,
without the prior written approval of Licensor;
(c) in any way seek to avoid Licensee's duties or obligations
under this Agreement because of the assertion or allegation by any
individual(s), entity or entities that any or all of the Trademarks
are invalid or by reason of any contest concerning the rights of or
claimed by Licensor; or
(d) file or prosecute one or more trademark applications
regarding Licensee's use of the Trademarks, unless first requested
to do so in writing by Licensor. (Licensee will cooperate with
Licensor in connection with any and all such filings.)
(ii) Licensee shall:
(a) use the Trademarks as permitted under this Agreement in
each jurisdiction strictly in accordance with the legal requirements
in such jurisdiction;
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(b) affix or imprint irremovably and legibly on each of the
Products and on or within all of the Materials such Trademarks,
trademark notices, copyright notices and legends as Licensor
directs;
(c) manufacture, sell, distribute or otherwise deal with the
Materials solely in connection with the Products (except for any or
all of the Materials which do not bear one or more of the Trademarks
or otherwise are not associated with any or all of the Products by
virtue of, but not limited to, such things as design, color or
content); and
(d) not cause or grant permission to any third party or
parties to acquire any copyright(s) or other proprietary right(s) in
connection with any word(s), device(s), design(s) or symbol(s) used
by Licensee in connection with any of the Products or the Materials.
j. Right to Subcontract, Licensee Financial Statements and Lists of
Sources and Customers:
(i) Licensee may subcontract the manufacture of any or all
component part(s) of any or all of the Products bearing the Trademarks
pursuant to this Agreement, provided Licensee first obtains from each such
subcontractor an executed written agreement in the form substantially
identical to that attached hereto and made a part hereof as Exhibit B and
furnishes a copy of each such executed agreement to Licensor.
(ii) With the Statement submitted at the end of each License Year
pursuant to Paragraph 2.d.(i) hereof and at any other time so requested by
Licensor during the Term and the Sell-Off Period or either thereof,
Licensee shall provide Licensor with: (a) copies of Licensee's most recent
audited financial statements (including without limitation footnotes) and
annual reports, 10-K's, balance sheets or other similar documents that
indicate Licensee's financial status and (b) an updated list of the names
and addresses of all manufacturing sources, subcontractors, suppliers,
dealers, wholesalers, retailers, customers and others which have been
engaged in the design, manufacture, advertising, promotion, sale,
distribution or other dealings with any or all of the Products and the
Materials during the Term and the Sell-Off Period or either thereof. Such
list shall, if so requested by Licensor, contain the full specification of
all designs, utility models, patents or trademarks that may be involved,
directly or indirectly, in the manufacture, production or distribution of
any or all of the Products and the Materials. Licensee shall obtain the
consent of any and all relevant third parties for such disclosure.
Licensor shall keep any material disclosed to it under this Paragraph
2.j.(ii) confidential and shall not disclose it without Licensee's prior
written notice. Nothing herein, however, shall
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prevent Licensor from disclosing such material pursuant to a court order
which requires Licensor to so disclose such material, and in such event,
Licensor shall notify Licensee of such requirement.
k. Inventory: Insofar as reasonable, Licensee shall at all times during
the Term be able to fulfill all orders for the Products promptly and yet not
have an excessive inventory on hand at the time of the expiration or termination
of the License. Within forty-five (45) days after each License Year or within
ten (10) days of receipt of a request from Licensor, Licensee will furnish
Licensor with a statement signed by the Chief Financial Officer of Licensee,
setting forth in detail the quantities of work in process and finished goods
inventories of the Products.
l. Trademarks and Non-Competitive Brands:
(i) For purposes of this Paragraph 2.1., the term "Licensee" shall
include any affiliate, subsidiary or principal shareholder of Licensee.
(ii) Licensee shall not use, cause or authorize to be used any
word(s), device(s), design(s), slogan(s) or symbol(s) confusingly similar
to any or all of the Trademarks. During the Term and the Sell-Off Period,
any or all of the following shall not be used on or in connection with the
Products without Licensor's prior written consent: (a) permutations of any
or all of the Trademarks; (b) secondary marks; or (c) new words, devices,
designs, slogans or symbols. Upon such authorization by Licensor and use
by Licensee, each such permutation, secondary mark, word, device, design,
slogan and symbol shall be the property of Licensor and shall be included
as one of the Trademarks subject to this Agreement. Should Licensee create
or develop any advertising, promotion, packaging or trade dress unique to
the Products, all such advertising, promotion, packaging or trade dress
shall be the property of Licensor and shall not be used by Licensee on or
in connection with any other product or merchandise during and after the
Term. No later than ten (10) days after expiration or termination of this
Agreement or at any other time Licensor so requests, Licensee will assign
to Licensor, without charge, all of Licensee's right, title and interest
(including without limitation all copyrights) in and to such advertising,
promotion, packaging or trade dress and shall cooperate fully with
Licensor in preparing and recording whatever documentation may be
necessary or desirable to effect such assignment.
(iii} Without Licensor's prior written consent, Licensee shall not
design, manufacture, advertise, promote, distribute, sell or deal with in
any way in the Territory any product(s) or material(s) that is or are in
Licensor's sole and absolute judgment confusingly similar to any or all of
the Products and the Materials.
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(iv) Licensee shall not use color combinations, designs or styles
unique to any or all of the Products on or in connection with any other
product(s), and Licensee, without charge, will assign to Licensor
ownership of all rights that Licensee has acquired or may acquire in such
color combinations, designs or styles no later than ten (10) days after
expiration or termination of this Agreement or at any other time Licensor
so requests.
(v) Licensee shall not during the Term and the Sell-Off Period
design, manufacture, advertise, promote, distribute, sell or otherwise
deal with any men's sophisticate publication(s) or product(s) identified
with or by any such publication(s) that are, in Licensor's opinion,
competitive with Playboy magazine, which for the purposes of this
paragraph shall include, but not be limited to, Hustler or Penthouse. In
the event Licensee commences any dealing with such publication(s) or
product(s), whether directly or indirectly, such dealing shall be a
default under this Agreement.
m. Indemnification and Product Liability Insurance:
Licensee shall:
(i) indemnify, defend and hold harmless Licensor, its subsidiaries
and affiliates, their respective shareholders, licensees and franchisees
and the agents, officers, directors and employees of each (hereinafter
collectively referred to as "Indemnities") from all costs, claims, suits,
losses, damages and expenses (including without limitation attorneys' fees
and litigation expenses) arising out of or in connection with: (a) the
design, manufacture, advertising, promotion, sale or distribution of or
any other dealing whatsoever with the Products; (b) any alleged action(s)
or failure(s) to act whatsoever by Licensee; (c) any alleged defect(s) in
any or all of the Products; (d) any alleged non-conformity to or
non-compliance with any law(s) pertaining to the design, quality, safety,
advertising, promotion or marketing of any or all of the Products and the
Materials; or (e) one or more breaches by Licensee of any or all of its
representations or warranties hereunder;
(ii) obtain and maintain, at Licensee's own expense, product
liability insurance satisfactory to Licensor in the minimum amount of
($ ) of primary and umbrella coverage from one or
more insurance companies, each with a Best's rating of "A" (or
better), and qualified to transact business in the Territory (each such
insurance policy shall name each of the Indemnitees as additional insureds
by reason of the indemnity contained in Paragraph 2.m.(i) hereof and shall
evidence the insurer's agreement that such insurance shall not be amended,
canceled, terminated or permitted to lapse without thirty (30) days' prior
written notice to Licensor), and provide Licensor with a certificate of
such insurance upon execution of this
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Agreement by Licensee and on each anniversary date of the grant or
issuance of each such policy during the Term and the Sell-Off Period
evidencing that each such policy has not been altered with respect to the
Indemnitees in any way whatsoever nor permitted to lapse for any reason,
and evidencing the payment of premium of each such policy; and
(iii) cause each such policy to be in full force and effect prior to
the commencement of any design, manufacture, advertising, promotion, sale,
distribution or dealing with any or all of the Products whatsoever.
Failure by Licensee to obtain the required insurance prior to such
commencement or failure by Licensee to adequately maintain such insurance
during the Term and the Sell-Off Period shall be an incurable default by
Licensee under this Agreement.
n. Advertising Expenditures: In addition to all other amounts or payments
due from Licensee under this Agreement, and not to be credited against any
Guaranteed Royalties or Earned Royalties, Licensee agrees to expend within each
License Year for advertising and promotion in trade and consumer media or either
thereof (including without limitation newspapers, magazines, television, radio,
and point-of-sale materials, but specifically excluding displays and fixtures)
not less than percent ( %) of Net Sales for such License Year. Some or all
of such sum for advertising and promotion shall be paid to Licensor (hereinafter
referred to as "Advertising Contributions") as follows:
(i) Concurrently with the furnishing of each Statement required
under Paragraph 2.d.(i) hereof, Licensee shall remit to Licensor for use
in Licensor's advertising and promotion pool an amount equal to
percent ( %) of Net Sales for the time period covered by such Statement,
which amount shall be shown on each such Statement and credited against
Licensee's annual advertising and promotion expenditures required herein;
and
(ii) If the Statement for the last License Quarter of a License Year
shows that such percent ( %) threshold has not been reached, the
difference between the amount actually spent and the amount required to be
spent must be remitted to Licensor for use in Licensor's advertising and
promotion pool with such statement.
3. ADDITIONAL COVENANTS OF THE PARTIES.
a. Reservation of Rights: All rights not expressly and specifically
granted herein to Licensee are reserved by Licensor.
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<PAGE>
b. Certain Sales:
(i) In the event Licensor during the Term chooses to exercise some
or all of Licensor's rights pursuant to Paragraph 1.a.(ii)(d) hereof,
Licensee, if requested to do so by Licensor, will sell to Licensor and its
licensee(s) or either thereof any or all of the Products at the best
prices and terms given to other customers of the Products ordering
substantially the same quantities of similar merchandise from Licensee.
(ii) In the event of any such sale of the Products by Licensee to
Licensor, Licensee shall ship or deliver such Products either directly to
Licensor at Licensor's expense or, as Licensor may direct, to any other
individual(s), entity or entities. Any or all such sales of the Products
by Licensee to Licensor shall be at the prices described in Paragraph
3.b.(i) hereof, less, at Licensee's election, applicable Earned Royalties;
provided that, if Licensor makes such election, Licensee will not have to
pay Earned Royalties on such sale(s). Licensee will, however, include such
sale(s) in the computation of Net Sales for the limited purpose of
calculating Minimum Net sales. Licensee shall bill Licensor and its
licensee(s) or either thereof in accordance with Licensee's normal billing
procedures for all such Products shipped or delivered.
4. TITLE AND PROTECTION.
a. Indemnification by Licensor: Licensor represents and warrants that: (i)
it is the owner of the Trademarks; (ii) the Trademarks are valid; and (iii) the
Trademarks are, to the best of Licensor's knowledge, free from any claim by any
third party that would unreasonably interfere with the rights granted to
Licensee under this Agreement. Licensor shall indemnify, defend and hold
harmless Licensee, its subsidiaries and affiliates, their respective
shareholders and the agents, officers, directors and employees of each against
and from all claims or suits (provided prompt notice of each such claim or suit
which comes to the attention of Licensee is given to Licensor by Licensee)
arising solely and directly out of the authorized use of the Trademarks on or in
connection with the Products by Licensee in the Territory, but in no event shall
such indemnification include consequential damages, including, but not limited
to compensation or reimbursement for loss of prospective profits, anticipated
sales or other losses occasioned by termination of this Agreement or any other
reason(s). Licensor shall have the option to settle or to undertake and conduct
the defense of any such claim or suit. Licensee may, through counsel of
Licensee's own choice and at its own expense, participate in any such claim or
suit, but in such event Licensor shall have sole and exclusive control over such
defense, and Licensor's decisions with respect thereto shall govern and control.
Licensee expressly covenants that no discussions by Licensee whatsoever with any
and all claimants and litigants, no compromise or settlement by Licensee of any
claim or suit and no negotiations by Licensee
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<PAGE>
with respect to any compromise or settlement shall be had, made or entered into
without the prior written approval of Licensor.
b. Enforcement: Licensee shall promptly notify Licensor in writing of each
actual, suspected or apparent infringement or imitation of the Trademarks or the
Materials or either thereof that comes to the attention of Licensee. Licensor
shall take such action in regard to such infringement or imitation as Licensor,
in its sole and absolute judgment, deems to be appropriate. Licensor shall, in
its sole and absolute discretion, decide whether to assert any claim or
undertake or conduct any suit with respect to such infringement or imitation,
but Licensee shall, upon receipt of notice from Licensor and pursuant to
Licensor's instructions, on behalf of Licensor, assert any such claim or handle,
undertake and conduct any such suit at Licensor's expense in the name of
Licensor or Licensee or in both names as Licensor may direct. Licensee expressly
covenants that no discussions whatsoever with the infringing or imitating party
or parties, no compromise or settlement of any such claim or suit and no
negotiations with respect to any compromise or settlement of any such claim or
suit shall be had, made or entered into without the prior written approval of
Licensor. Licensee may share in as much as percent ( %) of any damage
recovery or settlement obtained by Licensor or on Licensor's behalf by Licensee
as a result of any such claim or suit only if Licensee notified Licensor upon
the initiation of such claim or suit that Licensee desires to participate
financially in such claim or suit by contributing to the payment of the costs
and expenses thereof and only in an amount that shall bear the same ratio to the
damage recovery or settlement as the amount of Licensee's financial
participation permitted by Licensor bears to the total costs and expenses
incurred in obtaining such damage recovery or settlement. In no event shall
Licensor be responsible to Licensee for consequential damages that result from
any such infringement or imitation.
5. RELATIONSHIP BETWEEN THE PARTIES.
a. No Joint Venture: Nothing herein contained shall be construed to place
the parties hereto in the relationship of partners or joint venturers, and
Licensee shall have no power to obligate or bind any or all of Licensor and its
subsidiaries or affiliates in any manner whatsoever.
b. Assignment:
(i) Licensor, in entering into this Agreement, is relying entirely
upon Licensee's skills, reputation and personnel, including without
limitation its officers, managers, directors and shareholders. This
Agreement and all rights, duties and obligations hereunder are personal to
Licensee and shall not, without the prior consent of Licensor (which may
be given or withheld in the sole discretion of Licensor), be assigned,
delegated, sold, transferred, leased, mortgaged or otherwise encumbered by
Licensee or by operation of law. Any attempt to do so without such consent
shall be void and shall constitute
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an incurable default under this Agreement. If Licensor in its reasonable
discretion believes that any change(s) in any or all of the officers,
managers, directors and shareholders of Licensee has materially interfere
with or materially and adversely affect Licensee's performance hereunder
or the relationship between the parties hereto, Licensor may deem such
change(s) to be a default under this Agreement and shall so notify
Licensee. The consent of Licensor to any such assignment(s),
delegation(s), sale(s), transfer(s), lease(s), mortgage(s), other
encumbrance(s) or change(s) shall not be deemed to be consent to any
subsequent assignment(s), delegation(s), sale(s), transfer(s), lease(s),
mortgage(s), other encumbrance(s) or change(s).
(ii) Licensor may assign this Agreement or assign or delegate any or
all of its rights, duties and obligations hereunder to any of its
subsidiaries or affiliates or to any individual(s), entity or entities.
6. SUBLICENSING. Licensee may not, without the prior written approval of
Licensor, whose discretion shall be final and absolute, enter into any
sublicense agreement(s) or grant any sublicense(s) for any or all of the rights
or obligations of Licensee under the License or this Agreement. The consent of
Licensor to any sublicense agreement(s) or sublicense(s) shall not be deemed to
be a consent to any subsequent sublicense agreement(s) or sublicense(s).
7. DEFAULTS AND RIGHTS OF TERMINATION.
a. Defaults and Right to Cure:
(i) Except as otherwise provided in this Agreement, if
Licensee shall violate any of the terms or conditions hereof or
default on any of its duties, obligations or warranties hereunder,
Licensor shall have the right and option, but not the duty, to
terminate the License and this Agreement upon thirty (30) days'
prior written notice, but no neglect or failure to serve such notice
shall be deemed to be a waiver of any such violation or default.
Such termination shall become effective unless such violation or
default described in such notice shall be materially remedied to the
satisfaction of Licensor within such thirty (30) day period.
(ii) Notwithstanding the provisions of Paragraph 7.a.(i)
hereof, if such violation or default: (a) is of a kind that a remedy
or cure cannot effectively restore the prior circumstances; or (b)
is described in this Agreement as an incurable default, then the
License and this Agreement shall terminate upon receipt by Licensee
of written notice thereof without any period of remedy or cure
whatsoever. The termination of the License and this Agreement shall
be without prejudice to any rights that Licensor otherwise has
against Licensee under this Agreement or under law.
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<PAGE>
b. Bankruptcy or Assignment for Creditors, Business Discontinuance: If:
(i) Licensee files a petition in bankruptcy or is adjudicated a bankrupt; (ii) a
petition in bankruptcy is filed against Licensee; (iii) Licensee shall become
insolvent or shall make or agree to make an assignment for the benefit of
creditors or an arrangement pursuant to any bankruptcy law; (iv) Licensee
discontinues business; (v) Licensee receives a qualified opinion from its
independent auditor regarding Licensee's financial statements or an opinion
stating that Licensee's financial situation raises substantial doubt about
Licensee's ability to continue as a going concern (or the equivalent of such an
opinion); or (vi) a receiver shall be appointed for Licensee, the License and
this Agreement shall automatically terminate without the necessity of any notice
whatsoever. If the License and this Agreement are so terminated, any and all of
Licensee and its receivers, representatives, trustees, agents, administrators,
successors and assigns shall have no right to sell or in any way deal with any
or all of the Products and the Materials, except with the special prior written
consent and under the instructions of Licensor that it or they shall be
obligated to follow.
c. Loss of Trademark Rights: If Licensee's right to use any or all of the
Trademarks is adjudged illegal, invalid or restricted and such adjudication has
become final and non-appealable or Licensor in its sole discretion chooses not
to appeal therefrom, or if a settlement agreement is entered into by Licensor
that prohibits or restricts Licensor's or Licensee's right(s) to use the
Trademarks, the License and this Agreement shall automatically terminate without
the necessity of any notice whatsoever as of the date such adjudication becomes
final and non-appealable, the Licensor makes such choice or the execution and
delivery of such settlement agreement.
d. Impossible Performance: Licensee and Licensor shall be released from
their respective duties and obligations under this Agreement, and the License
and this Agreement shall terminate, if governmental regulations or other causes
arising out of a state of national emergency or war, or any other similar
cause(s) beyond the control of the parties hereto, shall render performance
hereunder impossible. Either party hereto shall so notify the other in writing
of any such cause(s) and of its desire to be released, and upon receipt by the
other of such notice, the License and this Agreement shall terminate and all
amounts owed under this Agreement (including without limitation all Earned
Royalties and Advertising Contributions on sales of the Products theretofore
made) shall become immediately due and payable.
8. EXPIRATION OR TERMINATION.
a. Effect of Expiration or Termination: Upon and after the expiration or
termination of the License and this Agreement, all rights granted to Licensee
under this Agreement shall immediately revert to Licensor. Licensee will refrain
from any further use of the Trademarks or any further reference to anything
similar to the Trademarks (including, but not
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<PAGE>
limited to, words, devices, designs and symbols) or in any way associated with
any or all of the Products, Licensor and its subsidiaries or affiliates, except
with the prior written consent of Licensor or as expressly provided in Paragraph
8.d. hereof.
b. Reserved Rights: The expiration or termination of the License and this
Agreement shall not: (i) relieve Licensor or Licensee, respectively of any
obligations incurred prior or subsequent to such expiration or termination or
(ii) impair or prejudice any of the rights of Licensor or Licensee,
respectively, accruing prior or subsequent thereto as provided in this
Agreement. Upon termination of the License and this Agreement pursuant to
Paragraph 7.c. or 7.d. hereof, Guaranteed Royalties for the then current
License Year shall be prorated based on the ratio that the number of days in
such License Year prior to termination bears to the number of days in the
License Year had the License and this Agreement not been terminated. Earned
Royalties due for such License Year shall be the excess of Earned Royalties over
such prorated Guaranteed Royalties. Any overpayment of Guaranteed Royalties or
overpayment or underpayment of Earned Royalties based on such proration shall be
adjusted by the parties hereto in accordance with Paragraph 2.f. hereof.
c. Inventory: Not more than ninety (90), but not less than thirty (30)
days prior to the expiration of the Term, or no later than Ten (10) days after
(i) receipt by Licensee of notice of termination or (ii) the happening of any
event that terminates the License and this Agreement where no such notice is
required, Licensee shall furnish to Licensor a complete and accurate statement
signed by the Chief Financial Officer of Licensee showing the number and
description of each of the Products in work in process and in finished goods
inventories and the location(s) thereof. Licensor and its nominees, employees,
agents and representatives shall have the right to conduct a physical inspection
to ascertain or verify the presence of such inventories and the accuracy of such
statement. Any refusal by Licensee to submit to such inspection shall forfeit
Licensee's right to complete work in process and to sell finished goods
inventory pursuant to Paragraph 8.d. hereof, and Licensor shall retain all other
legal and equitable rights it has in the circumstances, which rights are hereby
specifically reserved.
d. Continued Sales After Expiration or Termination: Except as provided in
Paragraph 8.c. hereof and so long as Licensee is not in arrears in the payment
of all amounts due to Licensor, upon the expiration of the License and this
Agreement or if the License and this Agreement are terminated pursuant to any
paragraph of this Agreement except Paragraphs 7.a.(ii), 7.b. or 7.c. hereof,
Licensee may for a period of one hundred twenty (120) days after the Expiration
Date or the effective date of termination (hereinafter referred to as the
"Sell-Off Period") sell through Licensee's existing, recognized network of
customers, all of the Products (in finished form) that have been approved by
Licensor and that were in work in process inventory or in finished goods
inventory on the
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<PAGE>
Expiration Date or at the time such notice of termination is received. In the
event that Licensee is unable to cancel a work in process order, Licensee shall
be given a ninety (90) day period after receipt of the work in process Products
within which to sell those work in process Products. Licensee shall pay Earned
Royalties and furnish Statements with respect to the Sell-Off Period (including
any additional period pursuant to a non-cancelable work in process order) and
otherwise comply with the terms and conditions of this Agreement as though the
License and this Agreement were still in effect. It is expressly understood and
agreed by Licensee that the Sell-Off Period shall be: (i) non-exclusive
consistent with Paragraph 8.f. hereof and (ii) considered a separate accounting
period for the purpose of computing Earned Royalties due to Licensor for sales
during such period, and such sales shall not be applied against any Guaranteed
Royalties due or payable prior to the Sell-Off Period. If the License and This
Agreement are terminated for failure of Licensee to make any payment(s) due
under this Agreement or pursuant to Paragraphs 7.a.(ii), 7.b. or 7.c. hereof,
Licensee shall forfeit any and all rights to use the Sell-Off Period and shall
be obligated to turn over to Licensor all Products in process or on hand at the
time of termination.
e. Equitable Relief and Legal Fees:
(i) Subject to Paragraph 8.d. hereof, Licensee hereby acknowledges
that its failure to cease the design, manufacture, advertising, promotion,
sale or distribution of the Products and the Materials upon the expiration
or termination of this Agreement will result in irreparable harm to the
Trademarks, Licensor and the rights of subsequent licensee(s) for which
there is no adequate remedy at law. Accordingly, in the event of such
failure or in the event of any violation or default by Licensee under this
Agreement (after giving effect to the provisions of Paragraph 7.a.(i)
hereof), Licensor shall be entitled to equitable relief without the
necessity of posting bond by way of any or all of temporary and permanent
injunctions and such other relief as any court of competent jurisdiction
may deem just and proper. In this regard, Licensee hereby consents to the
judgment of temporary and permanent injunctions in favor of Licensor in
order to give effect to this Paragraph 8.e.(i).
(ii) In the event either party hereto files any action against the
other to enforce any of the provisions of this Agreement or to secure or
protect such party's rights under this Agreement, such party shall be
entitled to recover, in any judgment in its favor entered therein, the
attorneys' fees and litigation expenses of such party, together with such
court costs and damages as are provided by law.
f. Continuity of Sales: In order to enable Licensor to maintain continuity
of sales of the Products upon expiration or termination of this Agreement,
Licensor shall have the right, notwithstanding anything to the contrary
contained in
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Paragraph 1.a. hereof to authorize one or more individuals or entities to
design, manufacture, advertise, promote, sell and distribute the Products in the
Territory for four (4) months preceding the expiration of this Agreement or from
the sooner of the time that notice is received by Licensee of termination of
this Agreement or when this Agreement is terminated. Such individual(s), entity
or entities shall not, however, be authorized to ship to its or their customers
any or all of the Products until after this Agreement has expired or has been
terminated, but may ship the Products to such customers during the Sell-Off
Period, if any.
g. Termination Fee: Notwithstanding anything to the contrary in this
Agreement, if Licensor terminates this Agreement as a result of a default by
Licensee, Licensee shall pay to Licensor as a termination fee no later than ten
(10) days after the date of such termination all outstanding Guaranteed
Royalties required to be paid during the six (6) month period following
termination in addition to all Earned Royalties and Advertising Contributions
due through the effective date of termination.
9. NOTICES.
a. Effectiveness: Unless otherwise expressly indicated in this Agreement,
each notice, request, approval, consent, payment and Statement (hereinafter
referred to as a "Submission") specifically provided for in this Agreement shall
be in writing and shall be considered effective or received the earliest of: (i)
five (5) days after the date when such Submission is mailed by certified or
registered mail with postage prepaid to the party hereto at the address(es) set
forth below; (ii) two (2) business days after the date (a) when such Submission
is sent by express courier service addressed to such party at such address(es)
or (b), except for payments, when such Submission is sent by facsimile addressed
to such party at such address(es) and the sender thereof requests and receives
written confirmation from such party that such Submission has been received and
is legible; or (iii) when such Submission is actually received by such party at
such address(es):
To Licensor: 730 Fifth Avenue
New York, NY 10019
Attention: Betsy Kain
Facsimile: 212-957-2950
Telephone: 212-261-5000
With a copy to: General Counsel
At The address specified in
Paragraph S.1. of the Schedule
To Licensee: The address specified in
Paragraph S.2. of the Schedule
Attention: Barry Budilov
Telephone: 215-925-1551
Facsimile: 215-925-0204
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With a copy to: Barry Ruteofsky
Telephone: 215-573-4376
Facsimile: 215-573-4313
b. Address Change: Notwithstanding the provisions of Paragraph 9.a.
hereof, each party hereto may give written notice to the other party of
some other address(es) to which Submissions shall be sent, in which event
such Submissions to such party subsequently shall be sent to such
address(es).
10. SEVERABILITY. Each provision of this Agreement shall be severable. If,
for any reason, any provision(s) herein is or are finally determined to be
invalid and contrary to, or in conflict with, any existing or future law or
regulation of a court or agency having valid jurisdiction, such determination
shall not impair the operation or affect the remaining provisions of this
Agreement, and such remaining provisions will continue to be given full force
and effect and bind the parties hereto. Each invalid provision shall be
curtailed only to the extent necessary to bring it within the requirements of
such law or regulation.
11. CONSENTS AND APPROVALS. If Licensor fails or refuses to grant to
Licensee any request(s), consent(s) or approval(s), Licensor may, but shall not
be required to, give one or more of the reason(s) therefor, but Licensor shall
not be liable for any events or circumstances that arise as a result of such
failure or refusal.
12. APPLICABLE LAW. This Agreement shall be governed by and interpreted
under the laws of the State of Illinois without regard to its conflicts of laws
provisions. Licensee hereby submits to personal jurisdiction in Cook County,
Illinois. The parties hereto agree that any and all disputes arising out of or
relating in any way to this Agreement shall be litigated only in courts sitting
in Cook County, Illinois.
13. NO BROKER. Licensee warrants and represents that Licensee used no
broker(s) in connection with the execution and delivery of this Agreement.
14. CONSTRUCTION. The headings used herein are for convenience only and
shall not be deemed to define, limit or construe the contents of any
provision(s) of this Agreement. The wording of this Agreement will be deemed to
be the wording chosen by the parties hereto to express their mutual intent, and
no rule of strict construction will be applied against any such party. The
Recitals and the Additional Terms and Conditions (contained in Exhibit C which
is attached hereto) shall be deemed to be part of this Agreement. This Agreement
may be executed in separate counterparts, each of which is deemed to be an
original, and all of which taken together constitute one and the same agreement.
15. SURVIVABILITY. Paragraphs 1.a.(ii), 2.a.(ii) through 2.a.(iv), 2.c.
through 2.g., 2.h. (iv) through 3.a., 3.b. (ii), 4.a., 5.a. and 7.a. (ii)
through 17, the Schedule and Paragraphs 1. through 4. of Exhibit B of this
Agreement shall survive the expiration or termination of the License and this
Agreement.
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16. RIGHTS CUMULATIVE. The respective rights and remedies of the parties
hereto, whether herein specified or otherwise, shall be cumulative, and the
exercise of one or more of them shall not preclude the exercise of any or all
other rights and remedies each such party has hereunder or by law.
17. ENTIRE AGREEMENT. This Agreement (with the Schedule and Exhibits A
through C) represents the entire understanding of the parties hereto. None of
the terms of this Agreement can be waived or modified except by an express
agreement in writing signed by the parties hereto. There are no representations,
promises, warranties, covenants or undertakings other than those contained in
this Agreement. No custom or practice of the parties hereto at variance with the
terms hereof shall constitute a waiver of Licensor's right to demand exact
compliance with any of the terms herein at any time. The failure of either party
hereto to enforce, or the delay by either party hereto in enforcing, any or all
of its rights under this Agreement shall not be deemed as constituting a waiver
or a modification thereof, and either party hereto may, within the time provided
by applicable law, commence appropriate proceedings to enforce any or all of
such rights. Except as expressly provided in this Agreement, no individual(s),
entity or entities other than Licensee and Licensor shall be deemed to have
acquired any rights by reason of anything contained in this Agreement.
IN WITNESS WHEREOF, the parties hereto, intending this Agreement to be
effective as of the Commencement Date, have caused this Agreement to be executed
by the duly authorized representative of each.
LIFESTYLE BRANDS, LTD.
(LICENSOR)
By: /s/ David Batchelor
-------------------
David H.L. Batchelor
Senior Vice President
Product Marketing
Date: Oct. 3, 1995
DIPLOMAT-AMBASSADOR Inc.
(LICENSEE)
By: /s/ Barry Budilov
-------------------
Title: President
Date: 11/1/96
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Exhibit 10.22
LICENSE AGREEMENT SUMMARY
-------------------------
LICENSED PROPERTY: PLAYSKOOL
This Summary is hereby incorporated into and made a part of the
attached License Agreement. The specifics detailed below, where numbered as
paragraphs or subparagraphs, relate to similarly numbered paragraphs or
subparagraphs in the attached License Agreement.
The License Agreement is between:
Licensor and Licensee
-------- --------
PLAYSKOOL, INC. DIPLOMAT OPTICAL COMPANY
1027 Newport Avenue 4211 Van Kirk Street
Pawtucket, Rhode Island 02862 Philadelphia, Pennsylvania 19135
1. GRANT OF LICENSE.
(a) Licensed Articles. Eyewear frames for prescription eyewear only
and coordinating eyewear accessories such as eyewear cases. License excludes
prescription ophthalmic lenses and non-prescription sunglasses.
(b) Territory. United States, its territories and possessions.
(c) Term.
Initial Term: January. 1, 1992 through December 31, 1994
Renewal Term: If, during the Initial Term, the Licensee has
earned and paid to the Licensor dollars ($ ) in
royalties, the agreement shall automatically be renewed for a period of one
year. Otherwise, any renewal shall be at the sole discretion of the Licensor.
2. TERMS OF PAYMENT
(a) Royalty Rate. % of Net Sales (except % of sales made F.O.B.
shipping point outside the Territory).
(b) Terms of Payment: Total
Royalty Advance Balance
Guarantee Payment Due Dates
--------- ------- ---------
Initial Term: $ $ $ due by
December 15, 1994
The advance royalty payment is due and payable upon Licensee's signing hereof
and the balance of royalty guarantee is due and payable as set forth above.
(c) Periodic Statements: Within thirty (30) days after the initial
shipment of the Licensed Articles, and promptly on the twenty-fifth (25th) day
of the month following each calendar quarter thereafter, Licensee shall furnish
to Licensor complete and accurate statements. The attached form must be used for
reporting royalties.
<PAGE>
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(d) Royalty Payments: Royalties in excess of the aforementioned
minimum royalty guarantee shall be due on the twenty-fifth (25th) day of the
month following the calendar quarter in which earned, and payment shall
accompany statements. Licensee shall not be permitted to reduce royalty payments
for any reason without prior written approval from Licensor. The Licensee shall
pay the Licensor interest on a late royalty payment at an interest rate of
% per month, or the highest rate permitted by law, from the date the
royalty should have been received by the Licensor.
8. (a) Labeling: As a condition to the grant of rights hereunder,
Licensee agrees that it will cause to appear on or within each Licensed Article
sold by it and on or within all advertising, promotional or display material
bearing the name, the notice: "(C) (year) Playskool, Inc. All rights reserved."
and any other notice desired by Licensor, and where such article or advertising,
promotional or display material bears a trademark or service mark, appropriate
statutory notice of registration thereof.
(b) Approvals: Each and every tag, label, imprint, storyboard, copy
and layout or other device containing any such notice and all advertising,
promotional or display material bearing the name, shall be submitted by Licensee
to Licensor for its written approval prior to use by Licensee. It is imperative
that Licensee use Licensor's approval form with each submission for Licensor's
approval. Otherwise, Licensor is not under any obligation to review Licensee's
submission.
10. (b) Distribution: Licensed Articles may only be sold through
professional optical distributors and mass marketers with optical services.
12. (a) Initial on Sale Date: The initial on sale date shall be
within a period of six (6) months after the commencement of the term of the
License Agreement.
14. Sell-off Period: One hundred-twenty (120) days.
The aforesaid terms and conditions and those set forth in the
attached License Agreement shall only be binding upon Licensor provided that
Licensee signs and returns the License Agreement Summary and License Agreement
within thirty (30) days of the aforementioned date, and Licensor countersigns
same.
AGREED TO AND ACCEPTED:
PLAYSKOOL, INC. DIPLOMAT OPTICAL COMPANY
By /s/ Dan D. Drew By /s/ Barry Budilov
-------------------- -----------------------
Date 1-24-92 Title President
Date 1-23-92
<PAGE>
LICENSE AGREEMENT
This AGREEMENT made this 1st day of January, 1992, by and between
PLAYSKOOL, INC., a Delaware corporation with its principal place of business at
1027 Newport Avenue, Pawtucket, Rhode Island 02862 (hereinafter called
"Licensor") and DIPLOMAT OPTICAL COMPANY with its principal place of business at
4211 Van Kirk Street, Philadelphia, Pennsylvania 19135 (hereinafter called
"Licensee").
WITNESSETH:
WHEREAS, Licensor has rights to the name, characters, symbols,
designs, likenesses and visual representations of PLAYSKOOL, and the copyrights
and trademarks thereon, as set forth on Schedule "A" hereunto annexed (which
names, characters, symbols, designs, likenesses and visual representations and
each of the individual components thereof shall hereinafter jointly be called
the "Name"); and
WHEREAS, Licensee desires to utilize the Name upon and in connection
with the manufacture, sale and distribution of articles hereinafter described.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the parties do hereby
agree as fellows:
1. GRANT OF LICENSE
(a) Licensed Articles. Upon the terms and conditions hereinafter set
forth, Licensor hereby grants to Licensee and Licensee hereby accepts the right,
license and privilege of utilizing the Name solely upon and in connection with
the manufacture, sale and distribution of the articles listed in the License
Agreement Summary, Paragraph 1(a), (hereinafter referred to as the "Licensed
Articles"), and no other articles of any kind. Licensor further grants to
Licensee, upon the terms and conditions hereinafter set forth, the right to use
the said trademarks only on or in connection with the Licensed Articles, but
only such trademarks and uses thereof as may be approved when the Licensed
Articles are approved and only on or in connection with the Licensed Articles.
(b) Territory. The license hereby granted extends only to the area
listed in the License Agreement Summary, Paragraph 1(b). Licensee agrees that it
will not make or authorize any use, direct or indirect, of the Name in any other
area, and that it will not knowingly sell Licensed Articles to persons who
intend or are likely to resell them in any other area.
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Notwithstanding this territorial limitation however, Licensee shall have the
right to manufacture the Licensed Articles (or have the Licensed Articles
manufactured for it as provided in Paragraph 20 hereof) outside the licensed
territory, provided, however, that the Licensed Articles are sold and
distributed only within such licensed territory.
(c) Term. The Initial Term of the license hereby granted shall be
effective as shown in the License Agreement Summary, Paragraph 1(c), unless
sooner terminated in accordance with the provisions hereof.
2. TERMS OF PAYMENT
(a) Rate. Licensee agrees to pay to Licensor as royalty, a sum equal
to that shown in the License Agreement Summary, Paragraph 2(a) , on all net
sales by Licensee or any of its affiliated, associated or subsidiary companies
of the Licensed Articles. The term "net sales" shall mean gross sales less
quantity discounts, sales taxes and returns, but no deductions shall be made for
cash or other discounts or uncollectible accounts. All costs and expenses
incurred in the manufacture, sale, distribution or exploitation of the Licensed
Articles, or otherwise incurred by Licensee, shall be paid by Licensee, and no
such costs or expenses shall be deducted from any royalty payable to Licensor.
With respect, however, to all sales made hereunder direct to customers within
the Territory where the terms of the sales are f.o.b. shipping point a place
outside United States, the said royalty shall instead be Percent ( %) of
the net selling price, unless a different rate is specifically indicated for
such f.o.b. sales on the License Agreement summary attached hereto.
(b) Terms of Payment: Initial Term. Licensee agrees to pay as a
minimum guarantee against royalties to be paid Licensor during the Initial Term
hereof, and as an advance payment applicable to said minimum guarantee, the sums
as shown in the License Agreement Summary, Paragraph 2(b). The advance and the
balance of the minimum guarantee against royalties shall be payable as shown in
the License Agreement Summary, Paragraph 2(b). No part of such minimum royalty
shall in any event be repayable to Licensee.
(c) Periodic Statements. Within thirty (30) days after the initial
shipment of the Licensed Articles, and promptly on the twenty-fifth (25th) day
of the month following each calendar quarter thereafter, Licensee shall furnish
to Licensor complete and accurate statements certified to be accurate by
Licensee, or if a corporation, by an officer of Licensee, showing the number,
country in which manufactured, country in which sold or to which
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shipped, description, gross sales price, itemized deductions from gross sales
price and net sales price of the Licensed Articles distributed and/or sold by
Licensee during the preceding calendar quarter, together with any returns made
during the preceding quarter. Such statements shall be furnished to Licensor
whether or not any of the Licensed Articles have been sold during the quarter to
which such statements refer. The form attached to this agreement must be used
for reporting royalties. Upon demand of Licensor, Licensee shall, at its own
expense, furnish to Licensor a detailed statement by an independent certified
public accountant or an officer of Licensee, showing the number, country in
which manufactured, country in which sold or to which shipped, description,
gross sales price, itemized deductions from gross sales price and net sales
price of the Licensed Articles distributed and/or sold by Licensee to the date
of Licensor's demand.
(d) Royalty Payments. Royalties in excess of the aforementioned
minimum royalty shall be due on the 25th day of the month following the calendar
quarter in which earned, and payment shall accompany the statements furnished as
required above. The receipt or acceptance by Licensor of any of the statements
furnished pursuant to this agreement, or of any royalties paid hereunder (or the
cashing of any royalty checks paid hereunder) shall not preclude Licensor from
questioning the correctness thereof at any time within two (2) years after the
expiration and/or termination of this License Agreement, and in the event that
any inconsistencies or mistakes are discovered in such statements or payments,
they shall immediately be rectified and the appropriate payment made by
Licensee. Licensee shall not be permitted to reduce royalty payments for any
reason without prior written approval from Licensor. The Licensee shall pay the
Licensor interest on a late royalty payment at an interest rate of % per
month, or the highest rate permitted by law, from the date the royalty payment
should have been received by the Licensor.
3. EXCLUSIVITY
(a) Nothing in this agreement shall be construed to prevent Licensor
from granting any other licenses for the use of the Name or from utilizing the
Name in any manner whatsoever, except that Licensor agrees that except as
provided herein, it will grant no other licenses for the territory to which this
license extends effective during the term of this agreement, for the use of the
Name in connection with the sale of the Licensed Articles.
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(b) Licensor reserves the right to use or license others to use
and/or manufacture Licensed Articles, including articles identical to those sold
by Licensee, as premiums. Licensor further reserves the right to use or license
others to use and/or manufacture Licensed Articles in direct response media.
(c) It is further understood that (i) in accordance with prior
terminated or expired license agreements relating to the use of the Licensed
Property in connection with the Articles in the Territory, Licensor reserves the
right to permit Licensee thereunder to sell-off such articles on hand or in
process within the Territory during the Term, and that (ii) third parties
granted rights for such exploitation of the Licensed Property after the Term
hereof may be granted permission to display, but not sell, proposed product at
trade shows during the Term, and/or consult with retailers and other third
parties, with regard to development and manufacturing of Licensed Articles.
4. GOOD WILL
Licensee recognizes the great value of the good will associated with
the Name, and acknowledges that the Name and all rights therein, including
copyright and trademark rights and good will pertaining thereto, belong
exclusively to Licensor, and that the Name has a secondary meaning in the mind
of the public. Licensee further recognizes and acknowledges that a breach by
Licensee of any of its covenants, agreements or undertakings hereunder will
cause Licensor irreparable damage, which cannot be readily remedied in damages
in an action at law, and may, in addition thereto, constitute an infringement of
Licensor's copyrights in or trademarks of the Name, thereby entitling Licensor
to equitable remedies, costs and reasonable attorney's fees.
5. LICENSOR'S TITLE AND PROTECTION OF LICENSOR'S RIGHTS
(a) Licensee agrees to assist Licensor to the extent necessary or
desirable in the procurement of any protection or to protect any of Licensor's
rights to the Name, and Licensor, if it so desires, may commence or prosecute
any claims or suits in its own name or in the name of Licensee, or join Licensee
as a party thereto. Licensee shall notify Licensor in writing of any
infringements or imitations by others of the Name on articles similar to those
covered by this agreement which may come to Licensee's attention, and Licensor
shall have the sole right to determine whether or not any action shall be taken
on account of any such infringements or imitations. Licensee shall not institute
any suit or take any action on account of any such infringements or
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imitations, or otherwise institute any suit or take any action relating to the
Name, without first obtaining the written consent of the Licensor to do so.
(b) Except with Licensor's written consent, neither Licensee, its
parent or any of its subsidiaries or affiliates, will register or attempt to
register copyrights in any country or to register as a trademark, service mark,
design patent or industrial design, any of the Licensed Articles, trademarks or
derivations or adaptations thereof, or any word, symbol or design which is so
similar thereto as to suggest association with or sponsorship by Licensor or any
of its subsidiaries. In the event of breach of the foregoing, Licensee agrees,
at its expense and at Licensor's request, immediately to terminate the
unauthorized registration activity and promptly to execute and deliver, or cause
to be delivered to Licensor, such assignments and other documents as Licensor
may require to transfer Licensor all rights to the registrations, patents or
applications involved.
6. INDEMNIFICATION BY LICENSEE AND PRODUCT LIABILITY INSURANCE
Licensee hereby indemnifies Licensor and undertakes to defend
Licensee and/or Licensor against and hold Licensor harmless from any claims,
suits, and damage arising out of any allegedly unauthorized use of the Licensed
Articles, the Name or any patent, process, idea, method or device by Licensee in
connection with the Licensed Articles or any other alleged action by Licensee,
and also from any claims, suits, loss and damage arising out of actual or
alleged defects in the Licensed Articles, whether defects in design,
manufacture, or otherwise. Licensee agrees that it will obtain, at its own
expense, product liability insurance from a recognized insurance company,
providing adequate product liability insurance protection (at least in the
amount of $ combined single limit of Bodily Injury Liability and
Property Damage Liability for each occurrence and annual aggregate), naming the
Licensee as named insured and Licensor as additional named insured against any
claims, suits, loss or damage arising out of any such actual or alleged defects
in the Licensed Articles. As proof of such insurance, a certificate of insurance
naming Licensor as an additional named insured will be submitted to Licensor by
Licensee for Licensor's prior approval before any Licensed Article is
distributed or sold, and at the latest, within thirty (30) days after the date
first written above. Any proposed change in such certificate of insurance shall
be submitted to Licensor for its approval. Licensor shall be entitled to a copy
of the then prevailing certificate of insurance, which shall be
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furnished Licensor by Licensee. As used in the first two sentences of this
Paragraph 6, "Licensor" shall also include the officers, directors, agents and
employees of the Licensor, or any of its subsidiaries or affiliates. The
certificate of insurance shall include a provision to notify the Licensor in
writing, prior to the effective date, of any cancellation of such insurance
before the expiration date thereof.
7. QUALITY OF MERCHANDISE
Licensee agrees that the Licensed Articles shall be of satisfactory
quality sufficient to meet consumer expectations. The Licensed Articles will be
of such style and appearance as to be appropriate for and suited to their
exploitation to the best advantage and to the protection and enhancement of the
Name and the good will pertaining thereto. The Licensee warrants that the
Licensed Articles will be designed, produced, sold and distributed in accordance
with all applicable United States laws, rules and regulations, including,
without limiting the generality of the foregoing, the Federal Food, Drug and
Cosmetic Act, the Federal Hazardous Substance Act (FHSA), the Flammable Fabrics
Act, the Consumers Products Safety Act, with all other state and local laws and
with the ASTM Standard Consumer Safety Specifications on Toy Safety (Toy
Manufacturers of America Voluntary Toy Safety Standard) (collectively, the "Acts
and Standards").
In order to insure that the Licensed Articles meet the above
standards, Licensee shall, prior to the date of first distribution of the
Licensed Articles, submit to the Licensor certification by the Licensee that
no Acts and Standards apply to the Licensed Articles.
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To this end, Licensee shall, before selling and distributing any of
the Licensed Articles, furnish to Licensor free of cost for its written
approval, a reasonable number of samples of each Licensed Article, its cartons,
containers and packing and wrapping material. The quality and style of such
Licensed Articles as well as of any carton, container or packing or wrapping
material, shall be subject to the approval of Licensor. After samples have been
approved pursuant to this paragraph, Licensee shall not depart therefrom in any
material respect without Licensor's prior written consent, and Licensor shall
not withdraw its approval of the approved samples except on sixty (60) days'
prior written notice to Licensee, unless the same shall be defective or harmful,
in which event, no such prior notice shall be required. Licensee shall, without
charge, furnish Licensor with ten (10) samples of each article manufactured
hereunder upon completion of the first production run thereof, and Licensee
shall not distribute same until it receives Licensor's written approval. Any
item submitted to Licensor shall not be deemed approved unless and until the
same shall be approved by Licensor in writing. From time to time after Licensee
has commenced selling the Licensed Articles, and upon Licensor's written
request, Licensee shall furnish without cost to Licensor, not more than ten (10)
additional random samples of each Licensed Article being manufactured or sold
by Licensee hereunder, together with any cartons, containers and packing and
wrapping material used in connection therewith. Should Licensor require
additional samples for any reason, Licensor may purchase such at Licensee's
cost. Sale of any Licensed Article by Licensee, the quality of which has not
been specifically approved by Licensor as
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hereinabove provided, shall be deemed to constitute a material breach of this
agreement.
8. TRADEMARK AND COPYRIGHT PROTECTION
(a) Labeling. As a condition to the grant of the rights hereunder,
Licensee agrees that it will cause to appear on or within each Licensed Article
sold by it and on or within all advertising, promotional or display material
bearing the Name, the notice as set forth in the License Agreement Summary,
Paragraph 8(a). In the event that any Licensed Article is marketed in a carton,
container and/or packing or wrapping material bearing the Name, such notice
shall also appear upon the said carton, container and/or packing or wrapping
material.
(b) Approval. Each and every tag, label, storyboard, copy and layout
imprint or other device containing any such notice, and all advertising,
promotional or display material bearing the Name, shall be submitted by Licensee
to Licensor for its written approval prior to use by Licensee. Approval by
Licensor shall not constitute a waiver of Licensor's rights or Licensee's duties
under any provision of this agreement. It is imperative that Licensee use
Licensor's approval form with each submission for Licensor's approval.
Otherwise, Licensor is not under any obligation to review Licensee's submission.
(c) Ownership. All right, title and interest in and to all
copyrights and trademarks embodying the Name or derived from the creation,
manufacture or sale by Licensee of the Licensed Articles, and all copyright and
trademark registrations based thereon, shall be in Licensor's name and shall be
owned exclusively by Licensor, and Licensee covenants and agrees that it shall
have no interest in or claim to the Name or to any of the copyrights and
trademarks associated therewith, except to the limited extent of the license to
use same pursuant to this agreement, and subject to its terms and conditions.
Licensee further agrees to provide Licensor with the date of the first use of
the Licensed Articles in interstate and in intrastate commerce and to provide
Licensor with all necessary documents, assignments and signatures which Licensor
may request for the purpose of perfecting Licensor's title to all such copyright
and trademark registrations. All uses of the trademarks by Licensee hereunder
shall inure to Licensor's benefit. Licensee acknowledges that Licensor is the
exclusive owner of all of the trademarks and the trademark rights created by
such uses. Without limiting the foregoing, Licensee hereby assigns to Licensor
all the trademarks and trademark rights created by such
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uses, together with the good will attaching to that part of the business in
connection with which the trademarks are used. Licensee agrees to execute and
deliver to Licensor, such documents as Licensor requires to register Licensee as
a Registered User or Permitted User of the trademarks and to follow Licensor's
instructions for proper use thereof in order that protection and/or
registrations for the trademarks may be obtained or maintained.
9. PROMOTIONAL MATERIAL
(a) In all cases where Licensee desires artwork involving Licensed
Articles to be executed, the cost of such artwork and the time for the
production thereof shall be borne by Licensee. All artwork and designs involving
the Name, or any reproduction thereof, shall be subject to prior written
approval of Licensor, and notwithstanding their invention or use by Licensee, be
and remain the property of Licensor, and Licensor shall be entitled to use the
same and to license the use of the same by others.
(b) Licensor shall have the right, but shall not be under any
obligation, to use the Name and/or the name of Licensee so as to give the Name,
Licensee, Licensor and/or Licensor's programs full and favorable prominence and
publicity.
(c) Licensee agrees not to offer for sale or advertise or publicize
any of the Licensed Articles on radio, broadcast, print or television without
the prior written approval of Licensor. Licensee also agrees to submit to
Licensor for advance approval, for the purpose of licensed character design
evaluation, designed sketches of all advertising and other publicity material
which Licensee proposes to use in connection with the promotion and sale of the
Licensed Articles.
10. DISTRIBUTION
(a) Licensee agrees that during the term of this license it will
diligently and/or continuously manufacture, distribute and sell the Licensed
Articles and that it will make and maintain proper and adequate arrangements for
the distribution of the Licensed Articles.
(b) Licensee agrees that it will sell and distribute the Licensed
Articles outright at a competitive price and at not more than the price
generally and customarily charged the trade by Licensee, and not on an approval,
or sale or return basis. Licensee further agrees to sell and distribute only to
professional optical distributors and mass-market retailers with optical
services as more particularly set forth in the License Agreement Summary,
Paragraph 10(b). Licensee shall not, without the prior
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written consent of Licensor, sell or distribute Licensed Articles to
distributors or merchants whose sales or distribution are or will be made for
publicity or promotional tie-in purposes, combination sales, premiums,
giveaways, or similar methods of merchandising, or whose business methods are
questionable. Licensee is expressly prohibited from making door to door sales.
In the event any sale is made at a special price to any of Licensee's
subsidiaries or to any other person, firm or corporation related in any manner
to Licensee or its officers, directors or major stockholders, there shall be a
royalty paid on such sales based upon the price generally charged the trade by
Licensee.
(c) Licensee agrees to sell to Licensor such quantities of the
Licensed Articles at as low a rate and on as good terms as Licensee sells
similar quantities of the Licensed Articles to the general trade.
11. RECORDS
Licensee agrees to keep accurate books of account and records
covering all transactions relating to the license hereby granted, and Licensor
and its duly authorized representatives shall have the right at all reasonable
hours of the day to an examination of said books of account and records and of
all other documents and materials in the possession or under the control of
Licensee with respect to the subject matter and terms of this agreement, and
shall have free and full access thereto for said purposes and for the purpose of
making extracts therefrom. All books of account and records shall be kept
available for at least two (2) years after the termination of this license. In
the event that Licensor's duly authorized representatives shall discover a
discrepancy of % or more pursuant to any such examination, Licensee shall pay
to Licensor the cost of such examination. The fee for said examination shall be
($ ) Dollars per day, but in no event shall Licensee be
charged in excess of ($ ) Dollars for any individual
examination. Royalties found to be due as a result of Licensor's examination of
the Licensee's books of accounts should be paid immediately with interest at an
interest rate of % per month, or the highest rate permitted by law, from
the date the royalty amount should have been paid to the Licensor.
12. BANKRUPTCY, VIOLATION, ETC.
(a) If Licensee shall not have commenced in good faith to
manufacture and distribute in substantial quantities all the Licensed Articles
by the initial on sale date, as defined in Paragraph 12(a) of the License
Agreement Summary, or if at any time thereafter in any calendar quarter
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Licensee fails to sell any of the Licensed Articles (or any class or category of
the Licensed Articles), Licensor, in addition to all other remedies available to
it hereunder, may terminate this license with respect to any Licensed Articles
or class or category thereof which have not been manufactured and distributed
during such calendar quarter, by giving notice of termination to Licensee. Such
notice shall be effective when mailed by Licensor.
(b) If Licensee becomes insolvent, or if a petition in bankruptcy or
for reorganization is filed by or against it, or if any insolvency proceedings
are instituted by or against it under any state or federal law, or if it makes
an assignment for the benefit of its creditors, or if a receiver is appointed
for its property and business and remains undischarged for a period of fifteen
(15) days, or if it liquidates its business in any manner whatsoever, or if any
distress, execution or attachment is levied on any of its assets and remains
undischarged for a period of fifteen (15) days, or if Licensee abandons the
manufacture of the Licensed Articles, Licensor shall have the right, if it so
elects, to terminate this agreement and the license hereby granted, upon ten
(10) days' notice in writing to Licensee. Upon the expiration of such ten (10)
days, this agreement and the license hereby granted shall cease and terminate,
but Licensee shall nevertheless continue to be liable to Licensor by reason of
its said default.
(c) If Licensee shall violate any of its other obligations under the
terms of this agreement, and each of such obligations shall be deemed to be
material, Licensor shall have the right to terminate the license hereby granted
upon ten (10) days' notice in writing, and such notice of termination shall
become effective unless Licensee shall completely remedy the violation within
the ten-day period and satisfy Licensor that such violation has been remedied.
(d) Termination of the license under the provisions of Paragraph 12
shall be without prejudice to any rights which Licensor may otherwise have
against Licensee, including the right to recover for damages caused it by
Licensee's breach. Upon the termination of this license, notwithstanding
anything to the contrary herein, all royalties on sales theretofore made shall
become immediately due and payable and no minimum royalties shall be repayable.
13. FINAL STATEMENT UPON TERMINATION OR EXPIRATION
Sixty (60) days before the expiration of this license and again,
within ten (10) days after such expiration (or, in the event of termination of
this license, ten (10) days after receipt of notice of termination or the
happening of the event which terminates this agreement where no notice is
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required), a statement showing the number and description of articles covered by
this agreement on hand or in process shall be furnished by Licensee to Licensor.
Licensor shall have the right to take a physical inventory to ascertain or
verify such inventory and statement, and refusal by Licensee to submit to such
physical inventory by Licensor shall forfeit Licensee's right to dispose of such
inventory as provided in Paragraph 14 hereof, Licensor retaining all other legal
and equitable rights Licensor may have in the circumstances.
14. DISPOSAL OF STOCK UPON EXPIRATION
After expiration of this agreement, Licensee, except as otherwise
provided in this agreement, may dispose of Licensed Articles which are on hand
or in process at the time of expiration, for a period of one hundred-twenty
(120) days after expiration, provided advances and royalties with respect to
that period are paid and statements are furnished for that period in accordance
with Paragraph 2. Notwithstanding anything to the contrary herein, Licensee
shall not manufacture, sell or dispose of any Licensed Articles after
termination hereof, based on the failure of Licensee to affix notice of
copyright, trademark or service mark registration or any other notice to the
Licensed Articles, cartons, containers, or packing or wrapping material, or
advertising, promotional or display material, or because of the departure by
Licensee from the quality and style approved by Licensor pursuant to Paragraph
7, or by reason of termination for any other causes set forth in Paragraph 12
above. In the event of such termination by Licensor by reason of any cause
contained in Paragraph 12, Licensee, its receivers, representatives, trustees,
agents, administrators and successors shall have no further right to sell,
exploit or in any way deal in or with any of the Licensed Articles or any
advertising matter, packing material, boxes, cartons or other documentation
relating thereto, except after having obtained express written consent of and
instructions with reference thereto from Licensor.
15. EFFECT OF TERMINATION OR EXPIRATION
Upon and after the expiration or termination of this license, all
rights granted to Licensee hereunder shall forthwith revert to Licensor, who
shall be free to license others to use the Name in connection with the
manufacture, sale and distribution of the Licensed Articles in the licensed
territory, and Licensee will refrain from further use of the Name or any further
reference to it, direct or indirect, or anything deemed by Licensor to
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be similar to the Name in connection with the manufacture, sale or distribution
of Licensee's products, except as provided in Paragraph 14.
16. LICENSOR'S REMEDIES
(a) Licensee acknowledges that its failure (except as otherwise
provided herein) to commence in good faith to manufacture, distribute and sell
in substantial quantities any one or more of the Licensed Articles by the
initial on sale date, and to continue during the term hereof to diligently and
continuously manufacture, distribute and sell the Licensed Articles or any class
or category thereof, will result in immediate damages to Licensor.
(b) Licensee acknowledges that its failure (except as otherwise
provided herein) to cease the manufacture, sale or distribution of the Licensed
Articles or any class or category thereof at the termination or expiration of
this agreement will result in immediate and irremediable damage to Licensor and
to the rights of any subsequent licensee. Licensee acknowledges and admits that
there is no adequate remedy at law for such failure to cease manufacture, sale
or distribution, and Licensee agrees that in the event of such failure, Licensor
shall be entitled to equitable relief by way of temporary and permanent
injunctions and such other further relief as any court with jurisdiction may
deem just and proper.
(c) Resort to any remedies referred to herein shall not be construed
as a waiver of any other rights and remedies to which Licensor is under this
agreement or otherwise.
17. EXCUSE FOR NONPERFORMANCE
Licensee shall be released from its obligations hereunder and this
license shall terminate in the event that governmental regulations or other
causes arising out of a state of national emergency or war or causes beyond the
control of the parties render performance impossible and one party so informs
the other in writing of such causes and its desire to be so released. In such
events, all royalties on sales theretofore made shall become immediately due and
payable, and no minimum royalties shall be repayable.
18. NOTICES
All notices and statements to be given, and all payments to be made
hereunder shall be given or made at the respective addresses of the parties as
set forth above, unless notification of change of address is given in writing
and the date of mailing shall be deemed the date the notice or statement is
given.
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19. NO JOINT VENTURE
Licensee shall not use the name or credit of Licensor in any manner
whatsoever, nor incur any obligation in Licensor's name. Nothing herein
contained shall be construed to constitute the parties joint ventures, nor shall
any similar relationship be deemed to exist between them. Nothing herein
contained shall be construed as constituting Licensee as Licensor's agent or as
authorizing Licensee to incur financial or other obligations in Licensor's name
without Licensor's special authorization in writing; and it is specifically
understood and agreed that under no circumstances shall any power granted, or
which may be deemed to be granted to Licensee, be deemed to be coupled with an
interest. It is specifically understood that the rights and powers retained by
Licensor to supervise or otherwise intervene in Licensee's activities and to
determine all matters of policy, all as hereinabove provided, are retained
because of the necessity of protecting Licensor's copyrights, trademarks,
properties and property rights generally, and specifically to conserve the good
will and good name of Licensor's company and of the Name.
20. NO ASSIGNMENT OR SUBLICENSE BY LICENSEE
This agreement and all rights and duties hereunder are personal to
Licensee and shall not, without the written consent of Licensor, be assigned,
mortgaged, sublicensed or otherwise encumbered by Licensee or by operation of
law. For purposes of this agreement, the term "assignment" shall, in addition to
the transfer of this agreement or the rights or obligations thereunder, whether
voluntarily, involuntarily, by operation of law or otherwise, be deemed to
include (i) a sale or other transfer by Licensee of all or substantially all of
its assets; (ii) the liquidation or dissolution of Licensee; (iii) the merger,
amalgamation, consolidation or reorganization of Licensee into or with another
corporation or other entity as a result of which Licensee is not the surviving
corporation; or (iv) any transaction (including any of the foregoing
transactions, as well as any in which Licensee is the surviving corporation)
which, whether by way of sale, gift or other transfer, whether involving the
Licensee or the record or beneficial owners of equity interests in the Licensee,
results in more than a ( %) percent change in the voting control of
Licensee. Licensee shall not be entitled to sublicense any of its rights under
this agreement, except in the event Licensee is not a manufacturer of the
Licensed Articles. Licensee shall be, subject to the prior written approval of
Licensor, entitled to utilize a third-party manufacturer in connection with the
manufacture and production of the Licensed Articles,
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provided that such manufacturer shall execute a letter in the form of Exhibit 1
attached hereto and made a part hereof. In such event, Licensee shall remain
primarily obligated under all of the provisions of this agreement. In no event
shall any sublicense agreement include the right to grant any further
sublicenses.
21. NO WAIVER
No waiver or modification of any of the terms of this agreement
shall be valid unless in writing and signed by the party to be charged. No
waiver by either party of a breach hereof or a default hereunder shall be deemed
a waiver by such party of a subsequent breach or default of like or similar
nature. Any approval or consent given by Licensor shall not constitute a waiver
of any of Licensor's rights or Licensee's duties under any provision of this
agreement. There are no representations, promises, warranties, covenants or
undertakings other than those contained in this agreement, which represents the
entire understanding of the parties. The failure of either party to enforce, or
the delay by either party in enforcing any of its rights under this agreement
shall not be deemed a continuing waiver or a modification thereof, and either
party may, within the time provided by applicable law, commence appropriate
legal proceedings to enforce any or all of such rights. No person, firm, group
or corporation (whether included in the Name or otherwise), other than Licensee
and Licensor, shall be deemed to have acquired any rights by reason of anything
contained in this agreement, except as provided in Paragraphs 5 and 20.
22. GOVERNING LAW
This agreement shall be construed in accordance with the internal
laws of the State of Rhode Island. The parties agree that any dispute arising
hereunder shall be subject to the exclusive jurisdiction of the courts of such
State, including the United States District Court for the District of Rhode
Island, and consent to the jurisdiction thereof.
The aforesaid terms and conditions as set forth above shall only be
binding upon Licensor provided that Licensee signs and returns the License
Agreement Summary and License Agreement within thirty (30) days of the
aforementioned date, and Licensor countersigns same.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be duly executed as of the day and year first above written.
PLAYSKOOL, INC.
By /s/ Dan D. Drew
---------------------------------
DIPLOMAT OPTICAL COMPANY
By /s/ Barry Budilov
---------------------------------
President
<PAGE>
Exhibit 10.23
AGREEMENT made as of the first day of January, 1992, by and between HARVE
BENARD LTD., a New York corporation with offices at 205 West 39th Street, New
York, New York 10018 (hereinafter referred to as "Licensor"), and CHANUK INC.,
d/b/a/ DIPLOMAT OPTICAL a Pennsylvania corporation with offices at 4211 Van Kirk
Street, Philadelphia, PA 19135 (hereinafter referred to as "Licensee").
WITNESSETH:
In consideration of the mutual covenants hereinafter set forth, Licensor
and Licensee do hereby respectively grant, covenant and agree as follows:
1. Grant of License
1.1 (a) Licensor hereby grants to Licensee, during the term of this
Agreement, an exclusive license only throughout the United States of America
possessions and territories of the United States of America and Canada
(hereinafter referred to as the "Territory") to use the mark "HARVE BENARD"
(hereinafter referred to as the "Licensed Mark") in connection with the
manufacture, distribution and sale solely of [Men's and Women's sunglasses and
ophthalmic spectacle frames] (hereinafter referred to as "Products"). The items
within the definition of "Products" which are manufactured, distributed and sold
by Licensee under and pursuant to this Agreement shall be referred to
collectively herein as "Articles."
<PAGE>
1.2 All Articles shall bear the Licensed Mark except as hereinafter
provided and no Articles (i.e., Products bearing the Licensed Mark) shall be
sold or otherwise distributed by Licensee under any mark other than the Licensed
Mark. Licensor reserves all rights to the Licensed Mark except as specifically
granted herein to Licensee and Licensor may exercise such rights at any time.
1.3 Licensee acknowledges that the rights granted to it hereunder do
not include the right to operate a boutique under the Licensed Mark or any
variation or simulation thereof or otherwise to sell Articles at retail.
1.4 Licensee shall use its best efforts to exploit the rights herein
granted throughout the Territory and to sell the maximum quantity of Articles
therein consistent with the high standards and prestige represented by the
Licensed Mark.
1.5 Licensee shall not export Articles from the Territory or sell
Articles to any entity which it knows or has reason to believe intends to export
Articles from the Territory.
1.6 Licensor and Licensee agree that the articles sold to Licensor
for sale in Licensor's Harve' Benard outlet stores, shall be invoiced at the
most favorable price which has been invoiced by licensee to customers described
herein, or at a more favorable price.
1.7 Licensor agrees that Licensee may sell Articles to full line
department stores such as, but not limited to Macy's, Nordstroms, May Company,
Bullocks, Bloomingdales, Saks Fifth Avenue, J.C. Penney, Sears and Dayton
Hudson; off-price retailer
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such as, but not limited to, Filene's, Marshalls, T.J. Maxx, Mandee and Annie
Sez; catalogue sales companies such as, but not limited to, Sears, Spiegel,
Montogomery Ward, and Avon; and warehouse clubs such as BJ Wholesale Club, and
Price Club; first quality boutiques; and to Licensor's owned and operated Harve'
Benard outlet stores. Sales to outlets with budget quality merchandise such as
flea markets, supermarkets and discount department stores are not contemplated
by this agreement.
2. Term
2.1 The initial term of this agreement shall be approximately three
(3) years and ten (10) months commencing as of March 1st, 1992 and continuing
through December 31, 1995. Thereafter, Licensee shall have the right to renew
this Agreement for one (1) additional term of three (3) years commencing on
January 1, 1996 and continuing through December 31, 1998, provided that (a)
Licensee notifies Licensor of its desire to renew this Agreement no later than
April 1, 1995 (b) Licensee is in compliance with all of the terms and conditions
of this Agreement both at the time the option is exercised and on the last day
of the initial term, and (c) "Net Sales" (as hereinafter defined) for the last
"Annual Period" (as hereinafter defined) of the initial term are not less than
$ . The period commencing on the date hereof and continuing through
December 31, 1993 and each twelve (12) month period commencing on each January
1st thereafter during the term of this Agreement shall constitute and shall be
referred to herein as an "Annual Period."
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<PAGE>
2.2 If Licensee otherwise effectively renews this Agreement but Net
Sales during the last Annual Period of the initial term are less than
$ . unless Licensor waives the shortfall the renewal shall be ineffective
and this Agreement forthwith shall terminate. If, however, at the time it is
determined that there was such a shortfall, Licensee has commenced the
development of the 1996 collection, termination shall be effective upon the
completion of the 1996 collection (unless otherwise sooner terminated in
accordance herewith), but in no event later than December 31, 1996.
2.3 Notwithstanding the provisions of paragraph 2.1 above, Licensor
may terminate this Agreement within thirty (30) days after its receipt of any of
the annual statements to be delivered to Licensor pursuant to paragraph 10.2
below in the event that "Net Sales" (as hereinafter defined) for the Annual
Period covered by any such annual statement are less than the amount necessary
to generate the "Guaranteed Minimum Royalty" (as hereinafter provided) for such
Annual Period. Any such termination shall be effective as of the end of the
collection then in process.
2.4 Licensee has at its option to make up any shortfall in the
guaranteed minimum royalty payable within 30 days after receipt of any of the
annual statements to be delivered to licensor pursuant to paragraph 10.2 below,
at which time the licensor forfeits its option for termination of this agreement
for said annual period.
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<PAGE>
3. Design Services
3.1 Intentionally Omitted
3.2 From time to time during each Annual Period, Licensor may
prepare and deliver to Licensee sketches and ideas for Articles. During each
Annual Period, Licensee shall submit to Licensor materials, designs, sketches,
colors, tags, labels and packaging from which Licensor may select those, if any,
which Licensor approves for use in connection with Articles. In its sole
discretion, Licensor shall approve or disapprove the materials, designs,
sketches, colors, tags, labels and packaging submitted as aforesaid and shall
discuss with Licensee any modifications or alterations thereof. Any such
approval by Licensor shall be given in writing prior to use of such materials,
designs, sketches, colors, tags, labels or packaging by Licensee.
3.3 All sketches and other material provided or approved by Licensor
shall be used by Licensee solely in connection with the manufacture,
distribution and sale of Articles in the Territory and pursuant to this
Agreement. If Licensee chooses not to use such sketches and other material,
Licensee shall deliver them to Licensor, at Licensee's expense, and may not use
them or permit their use thereafter. Whether or not Licensee chooses to use any
such sketches and other material, Licensor; may use and permit others to use
them in any manner it desires, provided that such use does not conflict with any
rights granted to Licensee hereunder.
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<PAGE>
3.4 Licensee shall be responsible for making all samples as well as
for the production of Articles; and Licensee shall bear all costs in connection
therewith.
4. Confidentiality
4.1 Licensee acknowledges that all information relating to the
business and operations of Licensor which it learns or has learned during or
prior to the term of this Agreement, all special design concepts which Licensor
provides to it and all sketches and designs received by it from Licensor are
valuable property of Licensor. Licensee acknowledges the need to preserve the
confidentiality and secrecy of such information, concepts, sketches and designs
and agrees that, both during the term of this Agreement and after the
termination hereof, it shall not use or disclose same, except as provided below,
and it shall take all necessary steps to ensure that use by it or by its
contractors and suppliers (which use shall be solely as necessary for, and in
connection with, the manufacture, distribution, sale, advertising or promotion
of Articles) shall preserve in all respects such confidentiality and secrecy.
Licensee hereby indemnifies Licensor against any damage of any kind which may be
suffered by Licensor as a result of any willful breach by Licensee or its said
contractors or suppliers of the provisions of this paragraph. The provisions of
this paragraph and Licensee's obligations hereunder shall survive the expiration
or termination of this Agreement.
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<PAGE>
5. Manufacture of Articles; Quality Control
5.1 The contents and workmanship of Articles shall be at all times
of the highest quality and Articles shall be distributed and sold with packaging
and sales promotion materials appropriate for highest quality Products.
5.2 The styles, designs, packaging, contents, workmanship and
quality of all Articles must be approved by Licensor in writing prior to the
distribution or sale thereof. Licensor has the right to take all actions which
it deems necessary to ensure that Articles manufactured or sold hereunder are
consistent with the reputation and prestige of the Licensed Mark as a
designation for highest quality products.
5.3 Before selling or distributing any Article, Licensee shall
deliver to Licensor for its approval, free of charge, one (1) sample of each
such Article together with the tags, labels and packaging to be used in
connection therewith. In addition, upon Licensor's request, Licensee shall
submit to Licensor then current production samples or each Article produced
hereunder so that Licensor may assure itself of the maintenance of the quality
standards set forth herein. All Articles to be sold hereunder shall be at least
equal in quality to the samples approved by Licensor. Licensor and its duly
authorized representatives shall have the right, upon reasonable advance notice
and during normal business hours, to examine Articles in the process of being
manufactured and to inspect all facilities utilized by Licensee in connection
therewith.
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<PAGE>
5.4 All Articles shall be manufactured, sold, labeled, packaged,
distributed and advertised in accordance with all a applicable laws and
regulations. Licensee shall use and display the Licensed mark only in such form
and manner as are specifically approved in writing by Licensor. Licensee shall
cause to appear on all Articles produced hereunder, and on their tags, packaging
and the like, and on all advertising, promotional and publicity material used in
connection therewith, including, without limitation, point-of-sale displays and
similar materials, and on any printed matter of any kind on which the Licensed
Mark appears, including but not limited to business cards, invoices, order forms
and stationary, such legends, markings and notices as Licensor may request.
Before using or releasing any such material, Licensee shall submit to Licensor,
for its approval, proposed advertising, promotional and publicity copy, finished
artwork for tags, labels packaging and the like and all printed matter of any
kind on which the Licensed Mark appears. Same shall not be used or released
prior to Licensee's receipt of such approval.
5.5 After any sample, copy, artwork or other material has been
approved, Licensee shall not depart therefrom in any respect without the prior
written approval of Licensor. If Licensor should disapprove any sample Article
or any sample tag, label, packaging or the like, or any advertising, promotional
or publicity material, Licensee shall neither use nor permit the same to be used
in any manner.
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<PAGE>
5.6 INTENTIONALLY OMITTED
6. Approvals
6.1 It is specifically understood and agreed that Licensor's
approval pursuant to Sections 3 and 5 of this Agreement will not be unreasonably
withheld.
6.2 Notwithstanding anything to the contrary herein, Licensor's
approval of any Articles for inclusion in, or of materials of any kind for use
in connection with the manufacture, distribution, sale, advertising and/or
promotion of, any particular collection of Articles only shall constitute
approval for inclusion or for such use in connection with such collection and
shall not be deemed to constitute approval of such Articles or of any such
materials with respect to any other collection of Articles.
7. Advertising; Showroom
7.1 Licensee shall exercise its best efforts to promote and
advertise Articles in the various appropriate media throughout the Territory as
may be approved by Licensor.
7.2 INTENTIONALLY OMITTED
8. Guaranteed Minimum Royalty
8.1 (a) In consideration of both the license granted and the design
services to be performed by Licensor hereunder, Licensee shall pay to Licensor a
Guaranteed Minimum Royalty for each Annual Period as follows:
Guaranteed Minimum
Annual Period Royalty
------------- -------
First $
Second $
Third $
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<PAGE>
(b) If this Agreement is effectively renewed, the Guaranteed
Minimum Royalty for each Annual Period during the renewal term shall be equal to
percent ( %) of the Guaranteed Minimum Royalty payable for
the preceding Annual Period.
8.2 The Guaranteed Minimum Royalty payable for each Annual Period
shall be paid to Licensor in four (4) equal quarter-annual installments on the
first day of each January, April, July and October during each such Annual
Period, except that, for the first Annual Period, the Guaranteed Minimum Royalty
shall be paid as follows: $ simultaneously with the execution hereof;
and $ on each of June 1, 1992, December 1, 1992 and June 1, 1993.
8.3 The Guaranteed Minimum Royalty for each Annual Period shall be
credited against the Sales Royalty for only the same Annual Period as provided
in Section 9 below.
9. Sales Royalty
9.1 In consideration of both the license granted and the design
services to be performed by Licensor hereunder, Licensee shall pay to Licensor a
Sales Royalty equal to percent ( %) of "Net Sales."
9.2 For purposed hereof, "Net Sales" shall be deemed to mean the
invoiced and/or shipped amount of Articles (and Products to which the Licensed
Mark is not affixed and Articles from which the Licensed Mark has been removed
in accordance with the provisions of paragraph 12.2 below) sold
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<PAGE>
by Licensee or any of its affiliates, less customary trade discounts actually
earned and taken by customers (but not other discounts for prompt payment, such
as "anticipation" discounts) and returns for damaged or defective merchandise
for exchange only. No deduction shall be made for other discounts, uncollectible
accounts or costs incurred by Licensee. Sales of Articles made other than in
arm's length transactions shall be deemed to have been made at the regular
wholesale price thereof.
9.3 The Sales Royalty hereunder shall be accounted for and paid
quarterly within thirty (30) days after the close of each three (3) month period
during the term of this Agreement (or portion thereof in the event of prior
termination for any reason), except that the first such accounting and payment
shall be for the period commencing on the date hereof and ending on December 31,
1993. The Sales Royalty payable for each accounting and payment period during
each Annual Period shall be computed on the basis of Net Sales during such
Annual Period, with a credit for any Guaranteed Minimum Royalty and Sales
Royalty payments therefore made to Licensor for said Annual Period. Returns
shall be accounted for (i.e., deductions for returns shall be made) in the
accounting and payment period in which the return is received (as opposed to the
period in which the original sale was accounted for).
9.4 No payment of Sales Royalty for any Annual Period in excess of
payments of Guaranteed Minimum Royalty for the same Annual Period shall be
credited against the Guaranteed Minimum Royalty due to Licensor for any other
Annual Period.
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<PAGE>
9.5 Net Sales shall not include sales to the Harve' Benard retail
stores controlled and operated by Licensor.
10. Sales Statement
10.1 Licensee shall deliver to Licensor at the time each Sales
Royalty payment is due, a statement signed by a duly authorized officer of
Licensee and certified by him as accurate indicating, sales by product category,
shipped during the period covered by such sales Royalty payment, the amount of
discounts and credits from gross sales which may be deducted therefrom and a
computation of the amount of Sales Royalty payable hereunder for said period.
Such statement shall be furnished to Licensor whether or not any Articles have
been sold during the period for which such statement is due.
10.2 Licensee shall deliver to Licensor, not later than forty-five
(45) days after the close of each Annual Period (or portion thereof in the event
of prior termination for any reason), a statement signed and certified by a duly
authorized officer of licensee and certified by him a accurate relating to said
entire Annual Period, setting forth the same information required to be
submitted by Licensee in accordance with paragraph 10.1 above and also setting
forth, with respect to the advertising and promotion of Articles, the total
amount expended by Licensee therefor during such Annual Period, including and
stating separately those amounts paid for cooperative, trade and national
consumer media advertisements
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<PAGE>
11. Books and Records; Audits
11.1 Licensee shall prepare and maintain, in such manner as will
allow its accountants to audit same in accordance with generally accepted
accounting principles, complete and accurate books of account and records
(specifically including without limitation the originals or copies of documents
supporting entries in the books of account) covering all transactions arising
out of or relating to this Agreement. Licensor and its duly authorized
representatives have the right, during regular business hours and after 48 hours
prior notice for the duration of this Agreement and for three (3) years
thereafter, to audit said books of account and records and examine all other
documents and material in the possession or under the control of Licensee with
respect to the subject matter and the terms of this Agreement, including,
without limitation, invoices credits and shipping documents. All such books of
account, records and documents shall be kept available by Licensee for at least
three (3) years after the end of the Annual Period to which they relate.
11.2 If, as a result of any audit of Licensee's books and records,
it is shown that Licensee's payments were less than amount which should have
been paid, all payments required to be made to eliminate any discrepancy
revealed by said audit shall be made promptly upon Licensor's demand therefor,
and, if the discrepancy is in an amount equal to percent ( %) or more of
amount actually paid with respect to sales occurring during the period in
question, Licensee promptly shall reimburse Licensor for the cost of such audit.
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<PAGE>
12. The Licensed Mark
12.1 Licensee shall not use the Licensed Mark, in whole or in part,
as a corporate name or trade name. Licensee shall not join any name or names
with the Licensed Mark so as to form a new mark. Licensee shall not use any name
or names in connection with the Licensed Mark in any advertising, publicity,
labeling, packaging or printed matter of any kind utilized by Licensee in
connection with Articles, unless and until Licensor consents thereto in writing.
12.2 Licensee acknowledges that Licensor is the owner of all right,
title and interest in and to the Licensed Mark in the Territory in any form or
embodiment thereof and is also the owner of the goodwill attached or which shall
become attached to the Licensed Mark in connection with the business and goods
in relation to which the same has been, is or shall be used. Sales by Licensee
shall be deemed to have been made by Licensor for purposes of trademark
registration and all uses of the Licensed Mark by Licensee shall inure to the
benefit of Licensor. Licensee shall not, at any time, do or suffer to be done
any act or thing which may in any way adversely affect any rights of Licensor in
and to the Licensed Mark or any registrations thereof or which, directly or
indirectly, may reduce the value of the Licensed Mark or detract from its
reputation. Licensee shall not affix the Licensed Mark to any Product if it is
to be sold as a "second" or as an "irregular" and shall remove the Licensed Mark
from any Article to be sold as a "second" or as an "irregular."
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<PAGE>
12.3 At Licensor's request, Licensee shall execute any documents
reasonably required by Licensor to confirm Licensor's ownership of all rights in
and to the Licensed Mark in the Territory and the respective rights of Licensor
and Licensee pursuant to this Agreement. Licensee shall cooperate with Licensor
in connection with the filing and prosecution by Licensor of applications in
Licensor's name to register the Licensed Mark for Products in the Territory and
the maintenance and renewal of such registrations as may issue.
12.4 Licensee shall use the Licensed Mark in the Territory strictly
in compliance with the legal requirements obtaining therein and shall use such
markings in connection therewith as may be required by applicable legal
provisions. Licensee shall cause to appear on all Articles and on all materials
on or in connection with which the Licensed Mark is used, such legends,
markings and notices as may be reasonable necessary in order to give appropriate
notice of any trademark, trade name or other rights therein or pertaining
thereto.
12.5 Licensee never shall challenge Licensor's ownership of or the
validity of the Licensed Mark or any application for registration thereof, or
any trademark registration thereof, or any rights of Licensor therein.
12.6 In the event that Licensee learns of any infringement or
imitation of the Licensed Mark or of any use by any person of a trademark
similar to the Licensed Mark, it promptly shall notify Licensor thereof.
Licensor thereupon shall take such
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<PAGE>
action as it deems advisable for the protection of its rights in and to the
Licensed Mark and, if requested to do so by Licensor, Licensee shall cooperate
with Licensor in all respects at Licensor's sole expense, including without
limitation by being a plaintiff or co-plaintiff and by causing its officers to
execute pleading and other necessary documents. In no event, however, shall
Licensor be required to take any action if it deems it inadvisable to do so and
Licensee shall have no right to take any action with respect to the Licensed
Mark without Licensor's prior written approval.
13. Copyright
l3.1 any copyright which may be created in any sketch, design,
packaging, label, tag or the like designed or approved by Licensor shall be the
property of Licensor. Licensee shall not, at any time, do or suffer to be done
any act or thing which may adversely affect any rights of Licensor in such
sketches, designs, packaging, labels, tags and the like, including, without
limitation, filing any application in its name to record any claims to
copyrights in Articles, and shall do all things reasonably required by Licensor
to preserve and protect said rights, including, without limitation, placing the
copyright notice specified by the Universal Copyright Convention on all Articles
and the packaging, labels and tags therefor.
14. Indemnity; Insurance
14.1 Licensee hereby saves and holds Licensor harmless of and from
and indemnifies it against any and all losses,
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<PAGE>
liability, damages and expenses (including reasonable attorneys' fees and
expenses) which Licensor may incur or be obligated to pay, or for which it may
become liable or be compelled to pay in any action, claim or proceeding against
it, for or by reason of any acts, whether of omission or commission, that may be
committed or suffered by Licensee or any of its servants, agents or employees in
connection with Licensee's performance of this Agreement. The provisions of this
paragraph and Licensee's obligations hereunder shall survive the expiration or
termination of this Agreement.
14.2 Licensee shall procure and maintain at its own expense in full
force and effect at all times during which Articles are being sold, with a
responsible insurance carrier acceptable to Licensor, a public liability
insurance policy including products liability coverage with respect to Articles,
as well as contractual liability coverage with respect to this Agreement, with a
limit of liability of not less than . Such insurance policy shall be
written for the benefit of Licensee and Licensor and shall provide for at least
thirty (30) days prior written notice to said parties of the cancellation or
substantial modification thereof. Such insurance may be obtained by Licensee in
conjunction with a policy of products liability insurance which covers products
other than Articles. Licensee shall deliver a certificate of such insurance to
Licensor promptly upon issuance of said insurance policy and, from time to time
upon reasonable request by Licensor, promptly shall furnish to Licensor evidence
of the maintenance of
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<PAGE>
said insurance policy. Nothing contained in this paragraph 14.2 shall be deemed
to limit in any way the indemnification provisions of paragraph 14.1 above.
15. Defaults
15.1 If Licensee fails to make any payment due hereunder, (a)
Licensee shall pay interest on the unpaid balance thereof from and including the
date such payment becomes due until the date the entire amount is paid in full
at a rate equal to the prime rate being charged in New York, New York, by
Citibank, N.A. as of the close of business on the date the payment first becomes
due plus percent ( %), and (b) if such default shall continue uncured for
a period of fifteen (15) days thereafter, Licensor shall have the right to
terminate this Agreement forthwith by written notice thereof to Licensee. If
Licensee discontinues the manufacture and distribution of Articles for a period
of sixty (60) or more days, if it exports Articles from the Territory or if it
defaults on any obligation which is secured by a security interest in any
Articles, Licensor shall have the right to terminate this Agreement forthwith by
written notice thereof to Licensee. If Licensor fails or if Licensee otherwise
fails to perform any of the terms, conditions, agreements or covenants in this
Agreement on its part to be performed and (i) such default is not curable, or
(ii) such default is curable but continues uncured for a period of fifteen (15)
days after notice thereof has been given to the defaulting party in writing by
the other party or (iii) such
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default is curable, but not within fifteen (15) days, and the defaulting party
is not diligently taking all steps necessary to cure the default as promptly as
practicable, the other party, at its sole election, may terminate this Agreement
forthwith by written notice thereof to the defaulting party.
15.2 (a) In the event that Licensee files a petition in bankruptcy,
is adjudicated a bankrupt or files a petition or otherwise seeks relief under or
pursuant to any bankruptcy, insolvency or reorganization statute or proceeding,
or if a petition in bankruptcy if filed against it or it becomes insolvent or
makes an assignment for the benefit of its creditors or a custodian, receiver or
trustee is appointed for it or a substantial portion of its business or assets,
this Agreement shall terminate automatically and forthwith.
(b) No assignee for the benefit or creditors, custodian,
receiver, trustee in bankruptcy, sheriff or any other officer of the court or
official charged with taking over custody of Licensee's assets or business shall
have any right to continue this Agreement or to exploit or in any way use the
Licensed Mark if this Agreement terminates pursuant to paragraph 15.2 (a) above.
(c) Notwithstanding the provisions of paragraph 15.2 (b)
above, in the event that, pursuant to the Bankruptcy Code or any amendment or
successor thereto (the "Code"), a trustee in bankruptcy of Licensee or Licensee,
as debtor, is permitted to assume this Agreement and does so and, thereafter,
desires to
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assign this Agreement to a third party, which assignment satisfies the
requirements of the Code, the trustee or Licensee, as the case may be, shall
notify Licensor of same in writing. Said notice shall set forth the name and
address of the proposed assignee, the proposed consideration for the assignment
and all other relevant details thereof. The giving of such notice shall be
deemed to constitute the grant to Licensor of an option to have this Agreement
assigned to it or to its designee for such consideration, or its equivalent in
money, and upon such terms as are specified in the notice. The aforesaid option
may be exercised only by written notice given to the trustee or licensee, as the
case may be, by Licensor within fifteen (15) days after Licensor's receipt of
the notice from such party, or within such shorter period as may be deemed
appropriate by the court in the bankruptcy proceeding. If Licensor fails to give
its notice to such party within the said exercise period, such party may
complete the assignment referred to in its notice, but only if such assignment
is to the entity named in said notice and for the consideration and upon the
terms specified therein. Nothing contained herein shall be deemed to preclude or
impair any rights which Licensor may have as a creditor in any bankruptcy
proceeding.
16. Rights on Expiration or Termination
16.1 In the event of termination in accordance with Section 15
above, Licensee shall pay to Licensor, (a) in addition to any Sales Royalty then
owed to it pursuant to Section 9 above or
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otherwise and all Guaranteed Minimum Royalty due and payable and unpaid as of
the date of termination, and (b) in addition to the Total Guaranteed minimum
Royalty remaining unpaid for the balance of the term of this Agreement, and
amount equal to any other actual damages Licensor may have suffered on account
of such termination or the acts or omissions from which it resulted.
16.2 Notwithstanding any termination in accordance with Section 15
above, Licensor shall have and hereby reserves all rights and remedies which it
has, or which are granted to it by operation of law, to enjoin the unlawful of
unauthorized use of the Licensed Mark or any violation by Licensee of the
confidentiality obligations under Section 4 above (any of which injunctive
relief may be sought in the courts, notwithstanding the arbitration provisions
of this Agreement, and also may be sought prior to or in lieu of termination),
to collect royalties payable by Licensee pursuant to this Agreement and to be
compensated for damages for breach of this Agreement. In addition, nothing
herein shall be deemed to prevent Licensor from bringing an action for damages
prior to or in lieu of termination if a default in performance by Licensee
occurs and is not cured timely in accordance with the provisions of Section 15
above.
16.3 Upon the expiration or termination of this Agreement, Licensee
immediately shall deliver to Licensor a complete and accurate schedule of
Licensee's inventory of Articles and of related work in process then on hand
(hereinafter referred to as "Inventory"). Such schedule shall be prepared as of
the
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close of business on the date of such expiration or termination and shall
reflect Licensee's cost of each such item. Licensor thereupon shall have the
option, exercisable by notice in writing delivered to Licensee within thirty
(30) days after its receipt of the complete Inventory schedule, to purchase any
or all of the Inventory for an amount equal to Licensee's Cost of the of the
Inventory being purchased. In the event such notice is sent by Licensor,
Licensee shall deliver to Licensor or its designee all of the Inventory referred
to therein within five (5) days after Licensor's said notice. Licensor shall pay
Licensee for such Inventory as is in marketable condition within sixty (60) days
after its receipt thereof.
16.4 If this agreement expires or is terminated other than pursuant
to paragraph 15.2 (a) above and other than by Licensor pursuant to paragraph
15.1 above, Licensee shall be (a) Entitled, for an additional period of six (6)
months only, on a non-exclusive basis, to sell and dispose of its Inventory. b)
If at this time there are current goods in process licensee is allowed (6) six
months after receipt of these goods to sell and dispose of this inventory. Such
sales shall be made subject to all of the provisions of this Agreement and to an
accounting for and the payment of Sales Royalty thereon. Such accounting and
payment shall be due within thirty (30) days after the close of the said six (6)
month period. Notwithstanding anything to the contrary herein, in the event that
Licensor notifies Licensee of its desire
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to purchase any of the Inventory pursuant to paragraph 16.3 above, such notice
shall apply only to that portion of the Inventory remaining on the date said
notice is received by Licensee.
16.5 Except as specifically provided in paragraph 16.4 above, on the
expiration or termination of this Agreement, all of the rights of Licensee under
this Agreement shall terminate forthwith and shall revert immediately to
Licensor, all Sales Royalties on sales theretofore made shall become immediately
due and payable and Licensee shall discontinue forthwith all use of the Licensed
Mark, no longer shall have the right to use the Licensed Mark or any variation
or simulation thereof and promptly shall transfer to Licensor, free of charge,
all registrations, filings and rights with regard to the Licensed Mark which it
may have possessed at any time. In addition, Licensee thereupon shall deliver to
Licensor, free of charge, all samples of Articles and all sketches and other
material in its possession which were designed or approved by Licensor and all
labels, tags and other material in its possession with the Licensed Mark
thereon. After the expiration or termination of this Agreement, Licensee shall
not use or permit others to use any of said sketches and other material, or any
variations or simulations thereof, in connection with products or any other
merchandise.
17. (Intentionally omitted)
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<PAGE>
18. Representations and Warranties
18.1 Licensor represents and warrants that it has full right, power
and authority to enter into this Agreement and to perform all of its obligations
hereunder. Licensor further represents and warrants that it has granted no other
existing license to use the Licensed Mark on Products in the Territory and that
it shall grant not such other license during the term of this agreement except
in accordance with the provisions hereof.
18.2 Licensee represents and warrants that it has full right, power
and authority to enter into this Agreement and to perform all of its obligations
hereunder.
19. Notice
19.1 All reports, approvals requests, demands and notices required
or permitted by this Agreement to be given to a party shall be in writing and
shall be deemed to be duly given if personally delivered, if mailed (by
certified or registered mail, return receipt requested) or if sent by overnight
mail or courier service such as Express Mail or Federal Express, which requires
the addressee to acknowledge receipt thereof, to the party concerned at its
address set forth on page 1 above (or at such other address as a party may
specify by notice to the other).
20. Travel Expenses
20.1 Licensee shall reimburse Licensor for the travel expenses
(i.e., first class airfare, lodgings, meals and local transportation) incurred
by Licensor's personnel in connection with trips undertaken at Licensee's
request or for purposes of meetings with Licensee.
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<PAGE>
21. Assignability; Binding Effect
21.1 The performance of Licensee hereunder is of a personal nature
and, therefore, neither this Agreement nor the license or other rights granted
hereunder may be assigned, sublicensed or transferred by Licensee and any such
attempted assignment or sublicense, whether voluntary or by operation of law,
directly or indirectly, shall be void and of no force or effect. The direct or
indirect transfer or issuance of any shares of Licensee or the voting rights of
such shares shall be deemed a violative assignment hereof if such transfer or
issuance in any way shall limit or reduce the rights or ability of the current
owners of Licensee to control the business and affairs of Licensee.
21.2 This Agreement shall inure to the benefit of and shall be
binding upon the parties, their respective successors, Licensor's transferees
and assigns and Licensee's permitted transferees and assigns.
22. Arbitration
22.1 Except as specifically set forth in this Agreement, any and all
disputes, controversies and claims arising out of or relating to this Agreement
or concerning the respective rights or obligations hereunder of the parties
hereto (except disputes, controversies and claims relating to or affecting in
any way Licensor's ownership of or the validity of the Licensed Mark or any
registration thereof, or any application for registration thereof (hereinafter
referred to as "Licensed Mark Disputes") shall be
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<PAGE>
settled and determined by arbitration in New York, New York before the
Commercial Panel or the American Arbitration Association in accordance with and
pursuant to the then existing Commercial Arbitration Rules. The arbitrators
shall have the power to award specific performance or injunctive relief and
reasonable attorneys' fees and expenses to any party in any such arbitration and
the courts shall have similar power with regard to that injunctive relief sought
by Licensor pursuant to paragraph 16.2 above and with regard to Licensed Mark
Disputes ("Court Actions"). However, in any arbitration proceeding arising under
this Agreement, the arbitrators shall not have the power to change, modify or
alter any express condition, term or provision hereof, and to that extent the
scope of their authority is limited. The arbitration award shall be final and
binding upon the parties and judgement thereon may be entered in any court
having jurisdiction thereof. The service of any notice, process, motion or other
document in connection with an arbitration under this Agreement or for the
enforcement of any arbitration award hereunder may be effectuated in the manner
in which notices are to be given to a party pursuant to Section 19 above.
22.2 (a) Any court Action shall be brought in New York, New York, in
any court having jurisdiction thereof. Each of Licensor and Licensee hereby
irrevocably submits to the jurisdiction of any of said courts in any Court
Action and hereby waives any claim or defense of inconvenient forum.
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<PAGE>
(b) Each of Licensor and Licensee represents and warrants that
it is not entitled to immunity from judicial proceedings and agrees that, should
the other bring any Court Action, it will not claim any immunity from such
proceedings for itself or with respect to its property.
23. Miscellaneous
23.1 Licensee shall not give away Articles or sell Articles in
connection with any tie-in or promotional campaign relating to products other
than Articles without the prior written consent of Licensor.
23.2 Notwithstanding anything to the contrary contained in this
Agreement, Licensor shall have the right, exercisable at any time, to negotiate
and enter into agreements with third parties pursuant to which it may grant a
license to use the Licensed Mark in connection with the manufacture,
distribution and sale of Products in the Territory or provide consultation and
design services with respect to products in the Territory, but only if, pursuant
to such third party agreements, the collections of such products are not shipped
prior to the termination of this Agreement. Nothing herein contained shall be
construed to prevent any such third party licensee from showing such products
and accepting orders therefor prior to the termination hereof.
23.3 This Agreement shall be construed and interpreted in accordance
with the laws of the State of New York applicable to agreements made and to be
performed in said State, contains the entire understanding and agreement between
the parties hereto with
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<PAGE>
respect to the subject matter hereof, supersedes all prior oral or written
understandings and agreements relating thereto and may not be modified,
discharged or terminated, nor may any of the provisions hereof be waived,
orally.
23.4 Nothing herein contained shall be construed to constitute the
parties hereto as partners or as joint venturers, or either as agent of the
other, and Licensee shall have no power to obligate or bind Licensor in any
manner whatsoever.
23.5 No waiver by either party, whether express or implied, of any
provision of this Agreement, or of any breach or default thereof, shall
constitute a continuing waiver of such provision or of any other provision of
this Agreement. Acceptance of payments by Licensor shall not be deemed a waiver
by Licensor of a any violation of or default under any of the provisions of this
Agreement by Licensee.
23.6 If any provision or any portion of any provision of this
Agreement shall be held to be void or unenforceable, the remaining provisions of
this Agreement and the remaining portion of any provision held void or
unenforceable in part shall continue in full force and effect.
23.7 This Agreement shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Agreement to be drafted. If any words or phrases in this Agreement shall have
been stricken out or otherwise eliminated, whether or not any other words or
phrases have been
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<PAGE>
added, this Agreement shall be construed as if those words or phrases were never
included in this Agreement, and no implication or inference shall be drawn from
the fact that the words or phases were so stricken out or otherwise eliminated.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
HARVE BENARD LTD.
by: /s/ Martin Holtzman Vice President
----------------------------------
CHANUK, INC.,
d/b/a DIPLOMAT OPTICAL
by: /s/ Barry Budilov President
----------------------------------
12-31-91
<PAGE>
Exhibit 10.27
AGREEMENT dated as of April 1, 1994 between KENNETH JAY LANE, INC.,
a New York corporation with offices at 20 West 37th Street, New York, New York
(hereinafter referred to as "Licensor"), and WINDSOR OPTICAL, INC., a Delaware
corporation with offices at 625 Hollywood Avenue, Cherry Hill, New Jersey 08002
(hereinafter referred to as "Licensee").
W I T N E S S E T H:
In consideration of the mutual covenants and the undertakings
hereinafter set forth, Licensor and Licensee do hereby respectively grant,
covenant, and agree as follows:
1. (a) Licensor hereby grants to Licensee, on the terms and conditions
hereinafter set forth, an exclusive license (the "License"), limited to the
territory of the United States and its territorial possessions, Canada, Puerto
Rico, the Caribbean Islands, Central America and Mexico (hereinafter referred to
as the "Territory"), to use the mark "KENNETH JAY LANE" (hereinafter referred to
as the "Licensed Mark") in connection with the manufacture, distribution, and
sale solely of prescription eyeglass frames and sunglasses, designed or approved
by Licensor pursuant to this Agreement (hereinafter referred to as the
"Articles").
(b) Notwithstanding the License granted in paragraph 1(a), (i)
Licensor retains the right to use and to grant to others the right to use the
Licensed Mark (A) in the Territory and elsewhere on and in connection with all
product types not included in the Articles and (B) in any area of the world
other
<PAGE>
than the Territory on or in connection with all product types whether or not
included in the Articles, and (ii) Licensee is aware of and hereby acknowledges
that (A) Licensor has entered and may enter into licenses and other agreements
with various persons for the use of the Licensed Mark and other trademarks of
Licensor in the Territory and elsewhere in connection with articles other than
the Articles, and (B) the License granted herein to Licensee will not conflict
with such licenses and agreements and Licensee will take no action that would
lead to a conflict with such licenses and agreements.
(c) Neither Articles nor any modifications or adaptations thereof
may be manufactured, distributed, or sold by Licensee under any mark other than
the Licensed Mark. Licensor reserves all rights to the Licensed Mark, except as
specifically granted herein to Licensee, and Licensor may exercise such rights
at any time. Licensee acknowledges that it has been granted no rights to any
other trademarks owned or used by Licensor or to the name or likeness of Mr.
Kenneth Jay Lane (except as otherwise Permitted by this Agreement) and that such
other trademarks may be used by Licensor and by such third parties to which
Licensor has granted or may grant the right to use such trademarks.
(d) Licensee shall use its best efforts to (i) exploit the License
throughout the Territory and (ii) manufacture and sell the maximum quantity of
Articles therein. Licensee agrees not to export Articles from the Territory and
not to sell to any
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<PAGE>
third party which it believes, or has a reasonable basis to believe, intends to
export Articles from the Territory.
(e) During each Annual Period, Licensee shall spend for promotional
materials and national trade advertising of the Articles and the Licensed Mark
no less than percent ( %) of Net Sales (as defined herein). Licensee shall
submit, by facsimile if necessary, proposed advertisements for Licensor's
approval, including specific details as to the contents, budget, timing, and
media placement of such advertisements, at least 45 days in advance of the
insertion order date, and must receive written approval from Licensor before
proceeding with such advertisements. If Licensor fails to respond to such
request within 15 days after receipt of such request, the proposed advertisement
shall be deemed approved. After any advertisement has been provided or approved
by Licensor, Licensee shall not depart in any respect from the contents, budget,
timing, and media placement specified and approved by Licensor, without the
prior written approval of Licensor by mail or facsimile. If Licensor fails to
give written approval of the contents, the budget, the timing, or the media
placement of any advertisement submitted by Licensee, such advertisement shall
not be used in any manner. All advertisements shall be subject to the
restrictions contained in paragraph 6(c) of this Agreement. Licensee
acknowledges that Licensor's approval or disapproval of any advertising
proposals may be based, without limitation, solely on Licensor's subjective
aesthetic standards.
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<PAGE>
Notwithstanding the foregoing provisions of this paragraph 1(e),
Licensee may supply advertising "slicks", the contents of which have been
approved by Licensor in the manner set forth above, to retail optical stores and
retail optical departments which sell the Articles for use in local advertising;
provided, however, that Licensee shall take all steps necessary to insure that
such retail optical stores and departments utilizing such slicks shall not place
any advertising based upon such slicks next to or in conjunction with any other
advertisement of such store or department. An advertising "slick" for purposes
of this paragraph 1(e) means camera-ready copy depicting the Articles and/or the
Licensor which has been approved by Licensor and prepared in such a way that
additional print may be overlaid in places provided therefor prior to actual
publication or placement in any advertising media.
(f) The "Annual Period" shall be from July 1 to the next succeeding
June 30, except that the first Annual Period shall be from the date of this
Agreement to June 30, 1995 and the last Annual Period shall be from the last
July 1 during the Agreement to the termination date of the Agreement.
(g) Licensee agrees that neither Licensee nor its affiliates will
advertise, promote, or otherwise use the Licensed Mark with any trademark, name,
personal endorsement or other identification of any other designer or celebrity
or in connection with the merchandise of any other designer or celebrity.
Notwithstanding the foregoing, nothing contained herein shall prohibit
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<PAGE>
Licensee from promoting Articles in a catalog containing merchandise of another
designer or celebrity.
(h) Licensee agrees that neither Licensee nor its affiliates will
use the name, trademark, personal endorsement or other identification of any
other designer or celebrity in the Territory in connection with any product type
included in the definition of Articles during the term of this Agreement.
2. (a) The term of this Agreement shall be for the period commencing on
the date of this Agreement and ending June 30, 1997.
(b) Licensor reserves the right at its option to enter into
agreements with third parties prior to the termination of this Agreement
pursuant to which such third parties may manufacture, and, subsequent to the
expiration of this Agreement, distribute and sell Articles in the Territory,
subject to Licensee's limited right to sell and dispose of inventory after
expiration or termination of this Agreement pursuant to Section 12(b).
3. (a) Licensee's first collections under this Agreement shall be a Fall
line which is expected to be shown to Licensee's customers for Fall, 1994.
(b) Prior to beginning the production of any item, Licensee shall
submit concepts, materials, sketches, colorations, and samples to Licensor from
which Licensor may select those of which Licensor approves for use in connection
with that collection of Articles. No such concept, material, sketch, coloration,
or
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<PAGE>
sample may be used by Licensee in connection with the Articles unless Licensor
shall have approved in writing such use. Licensor may, at Licensee's request
(but is not required to) submit concepts, materials, sketches, colorations, and
samples to Licensee for use in connection with collections of Articles. No
design submitted or approved by Licensor and used in a collection may be used
again in a subsequent collection or in any other line of Licensee without the
written approval of Licensor. Licensee agrees promptly to reimburse Licensor for
any such items submitted. Licensee will reimburse Licensor and Licensor's
employees for any out-of-pocket expenses incurred at Licensee's request, whether
for travel or otherwise. All travel by Mr. Kenneth Jay Lane pursuant to this
Agreement at Licensee's request shall be first-class. All concepts, materials,
sketches, colorations, and samples either provided or approved by Licensor shall
be kept confidential prior to use by Licensee and may be used by Licensee solely
in connection with the manufacture, distribution, and sale of the Articles in
the Territory pursuant to this Agreement. Licensee will be responsible for the
production of the Articles and samples thereof and will bear all costs in
connection therewith. Licensor may use and permit others to use such concepts,
materials, sketches, colorations, and samples in any manner she desires,
provided that such use does not conflict with any rights granted Licensee
hereunder.
(c) No later than one month prior to the initial delivery to
Licensee's distributors of each collection of Articles,
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<PAGE>
Licensee shall make available to Licensor in New York City for its inspection,
free of any charge, the entire collection of Articles consisting of one sample
of each separate Article together with its tags, labels, and packaging.
(d) In providing any information hereunder Licensor is acting in an
advisory capacity only and Licensor shall have no responsibility for the
operation or production of the manufacturing, distribution, advertising, or
sales facilities contemplated under this Agreement or for any decisions that may
be made in connection therewith, whether upon the recommendation of Licensor or
otherwise.
4. (a) Licensee agrees that the design, contents, workmanship, and all
other characteristics of the Articles shall at all times be of the highest
quality, consistent with the prestige and reputation which Licensor and the
Licensed Mark have developed heretofore, and the Articles shall be distributed
and sold with packaging and sales promotion materials appropriate to maintain
such quality image. All Articles will be manufactured, sold, labeled, packaged,
distributed, and advertised in accordance with all applicable laws and
regulations. Licensor shall have the right to approve the styles, designs,
packaging, contents, workmanship, and quality of all Articles to insure that
Articles manufactured, sold, or distributed hereunder are consistent with the
quality standards set forth herein. At Licensor's request, Licensee will deliver
to Licensor or make available to Licensor in New York City free of any cost to
Licensor then current production samples of
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<PAGE>
Articles produced hereunder so that Licensor may assure itself of the
maintenance of the quality standards Set forth herein. After production,
Licensee will also furnish Licensor with one item of each style of the Articles.
Licensee agrees that all Articles to be sold hereunder will be at least equal in
quality to the samples delivered or made available to Licensor and approved by
Licensor. Licensor and its duly authorized representatives shall have the right
to examine Articles in the process of being manufactured and to inspect all
facilities utilized by Licensee in connection with the manufacture of Articles.
(b) All Articles will bear the Licensed Mark. The form of each
label, inscription or marking must be approved by Licensor in writing. If
Licensor has not responded within 15 days of receipt of a request for approval,
the item shall be deemed approved.
(c) Licensee will use and display the Licensed Mark only in such
form and manner as is specifically approved in writing by Licensor. Licensee
will cause to appear on all Articles produced hereunder, on their tags, labels,
final sale packaging, and the like, on all advertising and promotional material
used in connection therewith, and on all materials on or in connection with
which the Licensed Mark appears, including without limitation business cards,
invoices, order forms, and stationery, such legends, markings, and notices as
may reasonably be necessary in order to give appropriate notice of any
copyright, trademark, trade name, or other rights therein or pertaining thereto,
or as Licensor
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<PAGE>
may reasonably request. At least 45 days before using or releasing any such
material, Licensee shall submit to Licensor, for its approval, proposed
advertising and promotional copy, all printed material, and finished art work
for tags, labels, final sale packaging, and the like.
(d) After any sample, copy, art work, or other material has been
approved, Licensee shall not depart therefrom in any respect without the prior
written approval of Licensor. If Licensor disapproves any sample Article or any
sample tag, label, package, or the like, such shall not be used in any manner in
connection with the Licensed Mark or as an Article hereunder.
(e) Licensee acknowledges that Licensor's approval or disapproval
pursuant to paragraphs 3 and 4 may be based, without limitation, solely on
Licensor's subjective aesthetic standards, which shall be exercised in good
faith. If Licensor does not respond to any request for approval within 15 days
of receipt of such request, the item shall be deemed approved.
5. (a) (i) In consideration of the License granted and the services
to be performed by Licensor hereunder, Licensee shall,
subject to the terms and provisions hereof, pay to
Licensor, for each Annual Period, a guaranteed minimum
fee (the "Guaranteed Minimum Fee") as follows:
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<PAGE>
Annual Period Guaranteed Minimum Fee
First $
Second $
Third $
(ii) The Guaranteed Minimum Fee for each respective Annual
Period shall be paid in four equal quarterly
installments on the first day of each July, October,
January and April during such Annual Period, except that
during the first Annual Period the Guaranteed Minimum
Fee shall be paid as follows: $ on the date of this
Agreement, and $ on each of October 1, 1994,
January 1, 1995, and April 1, 1995. Notwithstanding the
foregoing, no amount shall be payable by Licensee to
Licensor in payment of the Guaranteed Minimum Fee for
any Annual Period if the amount of Guaranteed Minimum
Fee and Percentage Fee (as hereinafter defined)
theretofore paid Licensor for such Annual Period equals
or exceeds the total Guaranteed Minimum Fee for such
Annual Period.
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<PAGE>
(iii) The Guaranteed Minimum Fee payments for each Annual
Period shall be credited only against Percentage Fee
payments for the same Annual Period as provided for in
paragraph 5(b).
(iv) In the event of the termination of this Agreement
pursuant to paragraph 12, all amounts due in payment of
Guaranteed Minimum Fees or the balance of the then
current term shall immediately, without notice or
demand, become due and payable.
(b) (i) In consideration of the License granted and the services
to be performed by Licensor hereunder, Licensee shall
pay to Licensor a percentage fee (the "Percentage Fee")
based upon Net Sales of all Articles during each Annual
Period. For purposes of this Agreement, "Net Sales"
shall be deemed to mean the invoiced amount of Articles
sold by Licensee or any of its affiliates, less actual
trade discounts, returns, and charges for customs duty,
freight, and sales taxes, if any. No deduction shall be
made for other discounts,
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<PAGE>
advertising, or other costs incurred by Licensee.
(ii) The Percentage Fee that Licensee shall pay to Licensor
for each Annual Period shall be an amount equal to (a)
percent ( %) of Net Sales other than to QVC
Network ("QVC") and (b) percent ( %) of Net
Sales to QVC, during such Annual Period.
(iii) Licensee shall deliver to Licensor within 30 days
following the end of each three month period (other than
the last three month period) during each Annual Period,
a statement signed by an executive officer of Licensee
and certified as accurate, indicating by month and by
style number the amount of Net Sales during such three
month period. Each such statement shall also indicate in
detail, separately for each jurisdiction in the
Territory, the number, description, invoice price, and
the total amount of gross sales of all Articles shipped
during the period covered, the amount of actual trade
discounts, returns, and charges for
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<PAGE>
customs duty, freight, and sales taxes which may be
deducted therefrom, a computation of the amount of the
Percentage Fee payable hereunder in respect of such Net
Sales for such period, and also the amount and details
of the advertising and promotional expenses relating to
the Articles and the Licensed Mark incurred during such
period. Such statements shall be furnished to Licensor
whether or not any Articles have been sold during the
period for which such statement is due. All monetary
amounts shall be expressed in United States Dollars. In
the event Licensee makes any sales denominated in a
foreign currency, the Percentage Fee shall be expressed
both in such foreign currency and in United States
Dollars, the latter on the basis of the average buying
rate and selling rate of the foreign currency to United
States Dollars in effect in the capital city of such
country on the last banking day of such quarter.
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<PAGE>
(iv) Licensee shall deliver to Licensor within 60 days
following the end of each Annual Period, a report
certified by an executive officer of Licensee covering
such Annual Period and containing the same information
required to be contained in the statements referred to
in paragraph 5(b) (iii).
(v) The Percentage Fee shall be paid quarterly for each
Annual Period. The Percentage Fee for each three month
period (other than the last three month period) during
each Annual Period shall be paid simultaneously with the
delivery of the statement referred to in paragraph 5(b)
(iii) relating to such three month period during such
Annual Period, and the Percentage Fee for the last three
month period of each Annual Period shall be paid
simultaneously with the delivery of the report referred
to in paragraph 5(b) (iv) relating to such Annual
Period. The Percentage Fee for each such three month
period shall be computed on the basis of Net Sales from
the beginning of such Annual Period
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<PAGE>
through the last day of the most recent three month
period, with a credit for the Guaranteed Minimum Fee and
for the Percentage Fee theretofore paid to Licensor for
such Annual Period.
(vi) In no event shall any payment of Percentage Fee for any
Annual Period in excess of payments of Guaranteed
Minimum Fee for the same Annual Period be credited
against the Guaranteed Minimum Fee due to Licensor for
any other Annual period.
(c) All payments made hereunder by Licensee to Licensor shall be
made in New York City, New York, in United States Dollars. Licensee shall not be
relieved of its obligation to make payments required hereunder as heretobefore
provided notwithstanding any circumstances which make it impossible for Licensor
or Licensee to take payments out of any jurisdiction in the Territory. In the
event that Licensee shall be prevented by any law, decree, or regulation of any
governmental authority within the Territory from transmitting any payment
hereunder at the time and in the manner provided herein Licensee shall, not
later than the date on which such transmittal is required to be made hereunder,
deposit the full amount thereof to the credit of Licensor in such bank or
depository as Licensor shall specify and furnish evidence of such deposit to
Licensor. Licensee shall apply at its sole expense for
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<PAGE>
all export or currency licenses, and shall take all other actions which may be
necessary or expedient to facilitate the prompt receipt by Licensor of all
payments hereunder in the manner and at the times provided herein.
(d) Licensee shall compute and pay on behalf of Licensor all taxes,
if any, which any foreign jurisdiction may impose on Licensor with respect to
the amounts paid to Licensor by Licensee other than personal income taxes, if
any. The amount of such taxes paid by Licensee shall be deducted from each
payment of the Percentage Fee. Licensee shall furnish Licensor with an official
receipt promptly after each such payment of taxes. In the event such taxes are
not paid when due, all resulting penalties and interest imposed on Licensor
shall be borne by Licensee.
6. Licensee shall prepare and maintain, in accordance with generally
accepted accounting principles consistently applied, complete and accurate books
of account and records (including without limitation the originals or copies of
documents supporting entries in the books of account) covering all transactions
relating to the License hereby granted, including transactions relating to
fulfillment by Licensee of its advertising obligations set forth in Section
1(e). Licensor and its duly authorized representatives shall have the right,
during regular business hours and upon reasonable notice, to examine such books
of account and records and all other documents and materials in the possession
or under the control of Licensee with respect to the subject matter and the
terms of this Agreement and Licensor shall have free and full
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<PAGE>
access thereto for such purposes and for the purpose of making extracts
therefrom. All such books of account, records, and documents shall be kept
available by Licensee for at least three years after the Annual Period to which
they relate.
7. (a) If, as a result of any examination of Licensee's books and records,
it is shown that Licensee's fee payments for any period were less than the
amount which should have been paid for such period by an amount equal to at
least five percent of the fee actually paid during such period, Licensee
promptly shall reimburse Licensor for the cost of such examination and Licensor
shall have the right to terminate this Agreement immediately upon written
notice.
(b) All payments required to be made to eliminate any discrepancy as
revealed by any examination of Licensee's books and records shall be made
promptly upon demand.
8. (a) Licensee agrees that no name or names shall be used in connection
with the Licensed Mark in any advertising, publicity, labeling, packaging, or
printed matter of any kind utilized by Licensee in connection with the Articles
except as Licensor may, from time to time, consent in writing. Licensee agrees
to use its best efforts to prevent the unauthorized use of the Licensed Mark and
of any derivatives thereof. Licensee agrees not to use the Licensed Mark or the
name or likeness of Mr. Kenneth Jay Lane or any derivative thereof in its
corporate name or business name or, unless approved by Licensor in writing, on
its business stationery, purchase orders, invoices, or letterhead.
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(b) Licensee acknowledges that Licensor is the owner of all right,
title, and interest in and to the Licensed Mark throughout the world in any form
or embodiment thereof and is also the owner of the goodwill attached or which
shall become attached to the Licensed Mark. Sales by Licensee shall be deemed to
have been made by Licensor for purposes of trademark registration and all uses
of the Licensed Mark by Licensee shall inure to the benefit of Licensor.
Licensee shall not do or suffer to be done any act or thing which will in any
way adversely affect any rights of Licensor in and to the Licensed Mark or any
registrations thereof or which, directly or indirectly, will reduce the value of
the Licensed Mark or detract from its reputation.
(c) Licensee shall timely execute any documents, including
Registered User agreements and applications to record the Licensee as a
Registered User, to confirm Licensor's ownership of all rights in and to the
Licensed Mark in the Territory and the respective rights of Licensor and
Licensee pursuant to this Agreement. Licensee will cooperate with Licensor, in
connection with the filing and prosecution by Licensor of applications in
Licensor's name to register the Licensed Mark for Articles in the Territory and
the maintenance and renewal of such registrations as may issue. Licensee will
reimburse Licensor for any and all costs incurred in connection with
applications to register the Licensed Mark for Articles in any jurisdiction in
the Territory and the maintenance and renewal of such registrations as may
issue.
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<PAGE>
(d) Licensee will use the Licensed Mark in the Territory strictly in
compliance with applicable legal requirements and will use such markings in
connection therewith as may be required.
(e) Licensee will never challenge Licensor's ownership of or the
validity of the Licensed Mark or any application for registration thereof, or
any trademark registrations thereof, or any rights of Licensor therein.
(f) Any copyright which may be created in any sketch, design, print,
package, label, tag, or the like designed or approved by Licensor will be the
property of Licensor. Licensee will not, at any time, do or suffer to be done
any act or thing which may adversely affect any rights of Licensor in such
sketches, designs, prints, packages, labels, tags, and the like and will, at
Licensor's request, do all things reasonably required by Licensor to preserve
and protect said rights. Licensee shall have the full right to use during the
term of this Agreement any sketch, design, print, package, label, tag or the
like designed or approved by Licensor in connection with this Agreement.
(g) Licensee acknowledges that the Licensed Mark has acquired a
valuable secondary meaning and goodwill with the public, and that products
bearing the Licensed Mark have acquired a reputation of highest quality and
style. Accordingly, notwithstanding any provision in this Agreement to the
contrary, Licensee undertakes and agrees not to use the Licensed Mark in any
manner whatsoever which, directly or indirectly, would derogate or detract
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from its or Licensor's repute, including but not limited to selling the Articles
to discount department and chain stores. Licensee recognizes that the
undertaking on its part set forth in this paragraph represents a major
inducement and consideration for Licensor to enter into this Agreement and will
consult with Licensor regarding its plans for marketing and distributing
Articles.
(h) Licensee acknowledges that Licensor has made no representation
or warranty that Licensor has enforceable legal rights in and to the Licensed
Mark in any jurisdiction other than the United States. In the event that
Licensor does not have such rights in any foreign jurisdiction or jurisdictions
such event shall not be deemed to be a breach or default under this Agreement.
9. In the event that Licensee learns of any infringement or imitation of
the Licensed Mark or of any use by any person of a trademark similar to the
Licensed Mark, it shall promptly notify Licensor thereof in writing and if, in
Licensee's reasonable opinion, such infringement, imitation, or use also
constitutes an infringement of the rights herein granted to Licensee, Licensee
shall specifically so state in its notice. In such latter case, if appropriate
action is not taken by Licensor within 20 days after the date of its receipt of
such notice from Licensee, Licensee shall have the right to prosecute such
trademark infringer but in such event Licensee will keep Licensor advised in
advance of its intentions in such action, will consult with Licensor with
respect thereto, and will not settle such action without Licensor's written
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approval (which approval may not be unreasonably withheld). If, however,
Licensor does take such action, Licensor shall permit Licensee to join such
action as an additional plaintiff. In either case, Licensor and Licensee agree
to cooperate fully with the party conducting the action. Any recovery obtained
against the third-party infringer shall be applied first against the legal fees
incurred in connection with such action and shall then be allocated between
Licensor and Licensee in the same proportion as the judgment or decision, as the
case may be, allocates damages or the award; if such judgment or decision fails
to make such allocation, such shall be determined by mutual agreement or by
arbitration in New York City in accordance with and pursuant to the then
existing rules of the American Arbitration Association.
10. (a) Licensee does hereby indemnify and agrees to save and hold
Licensor, its officers, directors, shareholders, employees and agents harmless
of and from any and all liability, claims, causes of action, suits, losses,
damages, and expenses (including, but not limited to, reasonable attorneys' fees
and expenses) for which they or any of them may become liable or may incur or be
compelled to pay in any action or claim (including, but not limited to, any
action or claim relating to products liability) against them or any of them, for
or by reason of any acts, whether of omission or commission, that may be
committed or suffered by Licensee or any of its officers, directors, affiliates,
agents, or employees in connection with Licensee's performance of this Agreement
or in connection with the manufacture, distribution,
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sale, or promotion of the Articles. The indemnitees shall give Licensee prompt
written notice of any such action or claim and Licensee may then, in its sole
discretion, take such action as it deems advisable to defend such action or
claim on behalf of the indemnitees. In the event appropriate action is not taken
by Licensee within 20 days of its receipt of notice from the indemnitees, the
indemnitees shall have the right to defend such action or claim, but no
settlement thereof may be made without the approval of Licensee (which approval
may not be unreasonably withheld). In any case, the indemnitees and Licensee
shall keep each other fully advised of all developments and shall cooperate
fully with each other in all respects in connection with any such defense as is
made.
(b) Licensee shall procure and maintain at its own expense in full
force and effect at all times during which Articles are being sold, with a
responsible insurance carrier acceptable to Licensor, a public liability
insurance policy including products liability coverage with respect to the
Articles and contractual coverage relating to this Agreement, with a limit of
liability of not less than $ (United States). Such insurance policy
shall be written for the benefit of Licensee and Licensor, and shall provide for
at least 30 days' prior written notice to Licensor and Licensee of the
cancellation or modification thereof. Such insurance may be obtained by Licensee
in conjunction with a policy of insurance which covers products other than the
Articles. Licensee shall deliver to Licensor, promptly upon issuance of same,
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a full and complete copy of such insurance policy and of all renewals thereof.
Nothing contained in this paragraph 10(b) shall be deemed to limit, in any way,
the indemnification provisions of paragraph 10(a).
11. (a) If Licensee shall fail to pay any amount due hereunder, (i)
Licensee agrees to pay interest, at a rate equal to the lesser of (A)
percent per annum over the prime rate being charged in New York City by Chemical
Bank as of the close of business on the date the payment first becomes due and
(B) the highest rate then permitted by law, on such amount remaining unpaid from
time to time from and including the date such amount becomes due until the date
such amount is paid in full and (ii) if such default shall continue uncured for
a period of ten days after written notice thereof ("Notice of Default") has been
given by Licensor, Licensor shall have the right to terminate this Agreement,
which termination may be automatic, at the option of Licensor, upon notice
thereof in the Notice of Default or in any subsequent notice to Licensee. If
Licensee shall otherwise fail to perform any of the terms, conditions,
agreements, or covenants in this Agreement on its part to be performed and such
default shall, although capable of being cured, continue uncured for a period of
15 days after a Notice of Default has been given by Licensor, Licensor may, at
its sole election, terminate this Agreement, which termination may be automatic
upon notice thereof in the Notice of Default or in any subsequent notice to
Licensee. If any such default is incapable of being cured by Licensee, Licensor
shall
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have the right to terminate the Agreement with immediate effect upon delivery of
written notice to Licensee. Licensee agrees that in the event of any default
under this paragraph 11(a) or in the event of a breach by Licensee of any other
provision of this Agreement, Licensee shall be responsible for all costs,
including without limitation legal fees and expenses, incurred by Licensor as a
result thereof. Nothing in this paragraph 12(a) shall be deemed to waive
Licensor's right to obtain damages for any default by Licensee, whether cured or
uncured.
(b) In the event Licensee files a petition for an order of relief
under any bankruptcy law, or if a petition for an order of relief is filed
against it and is not discharged or dismissed within 60 days thereafter, or if
it becomes insolvent, or makes an assignment for the benefit of its creditors,
or files a petition or otherwise seeks relief under or pursuant to any
bankruptcy, insolvency, or reorganization statute or proceeding, or if it
discontinues its business, or if a custodian, receiver, or trustee is appointed
for it or a substantial portion of its business or assets, Licensor may, at its
sole election, terminate this Agreement by written notice effective 60 days
after such filing or such other aforementioned event.
(c) No assignee for the benefit of creditors, custodian, receiver,
trustee in bankruptcy, sheriff, or any other officer of the court or official
charged with taking over custody of Licensee's assets or business shall have any
right to continue this Agreement or to exploit or in any way use the Licensed
Mark if
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Licensor exercises its right of termination pursuant to paragraph 10(b).
(d) Notwithstanding the provisions of paragraph 11(c), in the event
that, pursuant to any bankruptcy law, a trustee of Licensee (hereinafter
referred to as the "Trustee") or Licensee as debtor in possession is permitted
to assume this Agreement and does so and, thereafter, desires to assign this
Agreement to a third party, which assignment (i) satisfies the requirements of
such bankruptcy law, (ii) is to a party that has established a reputation for
producing products of the same type as the Articles and of a quality that is at
least equal to the quality of Articles produced by Licensee and consistent with
the standards set forth in this Agreement for Articles, (iii) is to a party that
can demonstrate its financial ability to perform the obligations of Licensee
pursuant to this Agreement, and (iv) provides that any payments in excess of the
amounts set forth hereunder be paid only to Licensor, the Trustee, or Licensee,
as the case may be, shall notify Licensor of the terms of such proposed
assignment in writing. The giving of such notice shall be deemed to constitute
an offer to Licensor to have this Agreement assigned to it or to its designee
for the consideration, or its equivalent in money, and upon such terms, as are
specified in the notice. The aforesaid offer may be accepted only by written
notice given to the Trustee or Licensee, as the case may be, by Licensor within
15 days of Licensor's receipt of the notice from such party. If Licensor fails
to give its notice to such party within the said 15 days, such party may
complete the
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assignment referred to in its notice, but only if such assignment is to the
entity named in the notice and for the consideration and upon the terms
specified therein. Nothing contained herein shall be deemed to preclude or
impair any rights which Licensor may have as a creditor in any proceeding or
shall be deemed to be a consent to any assignment.
(e) Notwithstanding any termination in accordance with the
foregoing, Licensor shall have and hereby reserves all the rights and remedies
which it has, or which are granted to it by operation of law, with respect to
the collection of fees payable by Licensee pursuant to this Agreement, with
respect to damages for breach of this Agreement by Licensee, with respect to the
recovery from Licensee of all costs incurred by Licensor as a result of any
breach of this Agreement by Licensee, including without limitation all legal
fees and expenses, and to enjoin the unlawful and unauthorized use of the
Licensed Mark.
12. (a) On the expiration or termination of this Agreement for any reason
whatsoever, all the rights of Licensee hereunder shall forthwith terminate and
automatically revert to Licensor and Licensee shall forthwith discontinue all
use of the Licensed Mark and shall no longer have the right to use the Licensed
Mark or any variation or simulation thereof. Licensee shall thereupon deliver to
Licensor, free of charge, all labels, tags, and other material in its possession
with the Licensed Mark thereon and Licensee shall cause stencils, sketches, and
other design materials not in its possession to be destroyed or rendered
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unusable. Licensee agrees not to reproduce or adapt any of such stencils,
sketches, or other design materials for use on merchandise subsequent to the
termination of this Agreement.
(b) Notwithstanding the provisions of paragraph 12(a), in the event
of the expiration or termination of this Agreement other than by Licensor in
accordance with paragraph 11, Licensee shall be permitted, for an additional
period of six months, on a non-exclusive basis, to sell and dispose of its
inventory of Articles from the collections prepared during the final year of
this Agreement (but no other Articles) on hand on the date of such termination
or expiration, subject to an accounting for and the payment of the Percentage
Fee on sales during such additional period and subject to the other terms and
conditions of this Agreement. Such accounting and payment shall be due within 30
days after the last day of such six-month period.
13. Licensor and Licensee each represents and warrants to the other that
the negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on directly between them in such a manner as not to
give rise to any valid claims against either of them for a brokerage commission,
finder's fee or other like payment, except for any payments which may be due to
Mort Gordon Enterprises, Inc. Licensee agrees to indemnify Licensor against any
and all liabilities (including, without limitation, reasonable attorneys' fees
and disbursements paid or incurred in connection with any such liabilities) for
any brokerage or finder's fees or other commissions or fees that may be asserted
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against Licensor by reason of any actions of Licensee or on Licensee's behalf in
connection with or as a result of this Agreement or the transactions
contemplated hereby, except for any payments that may be due to Mort Gordon
Enterprises, Inc.
14. (a) Licensee represents and warrants that it has full right, power,
and authority to enter into this Agreement.
(b) Licensee has delivered to Licensor the audited balance sheet of
Licensee as of 12/31/92 and related statement of income for the year then ended.
Licensee represents and warrants that such statements present fairly the
information purported to be shown therein, have been prepared in accordance with
generally accepted accounting principles, are correct and complete, and are in
accordance with the books and records of Licensee. Licensee further represents
that since the end of Licensee's last fiscal year there has at no time been a
material adverse change in the financial condition of Licensee and there is no
fact known to Licensee which materially adversely affects or in the future may
materially adversely affect the financial condition or business of Licensee.
15. All reports, approvals, notices and statements required or permitted
by this Agreement to be given to a party shall be in writing and shall be deemed
to be duly given if personally delivered or mailed by certified or registered
mail, return receipt requested, to Licensor at its address as set forth on page
1, and to Licensee at the address set forth on page 1 of this Agreement (or at
such other address as a party may specify by
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notice to the other).
16. Neither this Agreement nor the License or other rights granted
hereunder may be assigned, sublicensed, or transferred by Licensee, except as
specifically provided in paragraph 11(d), and any attempted violative
assignment, sublicense, or transfer, whether voluntary or by operation of law,
shall be void and of no force or effect. A change of control of Licensee or a
transfer of all or a controlling portion of the stock of Licensee shall be
deemed to be an assignment of this Agreement. Except as otherwise provided
herein, this Agreement shall inure to the benefit of and shall be binding upon
the parties and their respective successors and assigns.
17. This Agreement contains the entire understands ing and agreement
between the parties hereto with respect to the subject matter hereof, supersedes
all prior oral and written understandings and agreements relating thereto, and
may not be modified, discharged, or terminated orally.
18. Nothing herein contained shall be construed to constitute the parties
hereto as partners or as joint venturers, or either as agent of the other, and
neither party shall have any power or authority to assume or create any
obligation or responsibility whatsoever, express or implied, on behalf of or in
the name
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of the other, to bind the other in any manner, or to make any representation,
warranty, or commitment on behalf of the other.
19. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles of
conflict of laws. However, any and all disputes, controversies, and claims
arising out of or relating to this Agreement and pertaining to Licensor's
ownership of or the validity in any country of the Licensed Mark or any
registration thereof or any application for registration thereof shall be
governed by and construed in accordance with the trademark laws and related
laws, statutes, rules, and regulations of such country unless there are no laws,
statutes, rules, or regulations in such country dispositive of such disputes,
controversies, and claims, in which case any and all such disputes,
controversies, and claims shall be governed by and construed in accordance with
the federal trademark laws and related laws, statutes, rules, and regulations of
the United States unless there are no federal laws, statutes, rules, or
regulations of the United States dispositive of such disputes, controversies,
and claims, in which case any and all such disputes, controversies, and claims
shall be governed by and construed in accordance with the laws of the State of
New York, without giving effect to principles of conflict of laws.
20. Any waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to
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insist upon strict adherence to any term of this Agreement on one or more
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement. Any waiver must be in writing.
21. If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
22. This Agreement may be executed in counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
instrument.
23. Since a breach of the provisions of this Agreement by Licensee could
not adequately be compensated by money damages, Licensor shall be entitled, in
addition to any other right or remedy available to it, to an injunction
restraining such breach or a threatened breach and to specific performance of
any such provision of this Agreement, and in either case no bond or other
security shall be required in connection therewith, and Licensee hereby consents
to the issuance of such injunction and to the ordering of specific performance.
24. At any time and from time to time, each party agrees, without further
consideration, to take such actions and to execute and deliver such documents as
may be reasonably necessary to effectuate the purposes of this Agreement.
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25. Licensee hereby irrevocably consents to the jurisdiction of the courts
of the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this
Agreement (other than as contemplated by the last sentence of paragraph 10), any
document or instrument delivered pursuant to, in connection with, or
simultaneously with this Agreement, or a breach of this Agreement or any such
document or instrument. Within 30 days after such service, or such other time as
may be mutually agreed upon in writing by the attorneys for the parties to such
action or proceeding, Licensee shall appear or answer such summons, complaint,
or other process. Should Licensee so served fail to appear or answer within such
30-day period or such extended period, as the case may be, Licensee shall be
deemed in default and judgment may be entered by Licensor against Licensee for
the amount as demanded in any summons, complaint, or other process so served.
26. Licensee agrees to obtain, at its expense, any and all required
approvals of this Agreement or any of the transactions contemplated hereby by
any government in the Territory outside of the United States or any agencies or
subdivisions thereof.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement the day and year first above written.
WINDSOR OPTICAL, INC.
By: /s/ Jay J. Kitnick
--------------------------------
Name: Jay J. Kitnick
Title: President
KENNETH JAY LANE, INC.
By: /s/ Kenneth Lane
--------------------------------
Name: Kenneth Lane
Title:
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Exhibit 10.29
LICENSE AGREEMENT
THIS AGREEMENT made this 1st day of January, 1993 by and between JONES
INVESTMENT CO., INC. ("Jones"), a Delaware corporation, and DIPLOMAT-AMBASSADOR
EYEWEAR GROUP ("Licensee") a Pennsylvania corporation.
W I T N E S S E T H:
Jones is the owner and registrant of the trademark and subsisting
registrations for the Mark "Jones New York", registered in the United States
Patent and Trademark Office.
Licensee is engaged in the manufacture, sale and distribution of optical
frames and sunglasses, and Licensee desires to obtain from Jones a license to
use the Mark in connection with such goods under and subject to all of the terms
and conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto, in consideration of the foregoing and
of the mutual covenants contained herein, and intending to be legally bound
hereby, agree as follows:
I. Definitions
As used in this Agreement, the following terms and phrases shall have the
following meanings:
1.1 Annual Period. The period from commencement of the Term through
December 31, 1993 and each consecutive twelve (12) month period thereafter
during the Term.
1.2 Approval. The approval, not to be unreasonably withheld, by Jones of
one or more designs, samples, items of Packaging, advertising or promotional
materials or other items for which approval is required under this Agreement, in
writing in a document which identifies the item or items approved and is signed
by an authorized representative of Jones. Jones shall be deemed to have approved
any item submitted to it by Licensee for Approval under the terms of this
Agreement, if Jones fails to approve, disapprove or otherwise respond to the
submission in writing within fourteen (14) days after receipt of the items
submitted.
<PAGE>
1.3 Guaranteed Minimums. The guaranteed minimum Royalties payable by
Licensee under Paragraph 3.2.
1.4 Jones Merchandise. Any and all items of Merchandise which in any
manner bear, incorporate or embody the Mark or any design, pattern, sketch or
idea supplied by Jones.
1.5 Mark. Jones' trademark, "Jones New York".
1.6 Merchandise. The items of merchandise covered by the license granted
under this Agreement include only opthalmic eyewear, sunglasses and eyewear
accessories.
1.7 Net Sales. The invoiced amount of Jones Merchandise billed or shipped
by Licensee, less actual trade discounts, returns and allowances and sales tax,
if any, with no deduction made for other discounts or uncollectible accounts or
for any cost incurred by Licensee in the manufacture, sale, distribution, or
exploitation of the Jones Merchandise. In the event of sales by Licensee of
Jones Merchandise to outlet stores or other purchasers under Licensee's direct
or indirect control, Net Sales shall be calculated on the basis of a sales price
and invoiced amount that Licensee would charge to an unrelated third party in an
arms-length transaction, regardless of the price actually charged or invoiced.
1.8 Packaging. All tags, labels, cartons or containers and packing or
wrapping material used or to be used by Licensee in connection with Jones
Merchandise.
1.9 Royalties. The royalties to be paid by Licensee to Jones for or in
connection with the license to use the Mark granted under this Agreement,
provided for in Article III and all other applicable portions of this Agreement.
1.10 Term. The Initial and Renewal Terms, if any, of this Agreement,
provided for and defined in Article VIII, taken collectively.
1.11 Termination Inventory. The inventory provided for in Paragraph 8.5 of
Jones Merchandise finished products, Jones Merchandise on order, work in process
and of Packaging and advertising and promotional material on hand at the time of
the termination of this Agreement.
1.12 Territory. The geographical area consisting of the United States, its
territories and possessions and Canada. However, the license with respect to
Canada may be terminated at any time and for any reason by Jones, and Jones
shall not be liable for any damages which Licensee may suffer due to such
termination. In the event that Jones exercises its right to
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terminate the license for Canada granted herein, all requirements of this
Agreement, including the guaranteed minimum Royalties as set forth in Paragraph
3.2, shall remain unchanged. In addition, the parties shall comply in all
respects with Paragraphs 8.5 and 8.6 regarding the Canadian inventory and
termination sales thereof.
II. License
2.1 Grant of License. Jones hereby grants to Licensee an exclusive license
throughout the Territory to use the Mark in connection with the manufacture,
advertising, merchandising, promotion, sale and distribution of Jones
Merchandise approved by Jones, in accordance with the terms of this Agreement.
The license granted herein extends only to the Merchandise, Territory and uses
expressly provided for in this Agreement, and Licensee shall not use or attempt
to use the Mark on any other products or goods in any other area or any other
manner whatsoever.
2.2 Distribution Channels. Licensee acknowledges that Jones has
established a reputation for unique high quality fashionable merchandise sold in
high quality and high fashion stores, and that Jones maintains a marketing
strategy of retaining and projecting to consumers that reputation and ambience
for its products. Accordingly, in order to protect Jones' marketing strategy,
goodwill and prestige and reputation, Jones Merchandise shall be sold only in
better department stores and in better specialty stores and the license granted
under this Agreement extends only to the use of the Mark in connection with the
manufacture, advertising, merchandising, promotion, sale and distribution of
Jones Merchandise for sale to customers in such better department stores and
better specialty stores.
2.3 Prohibition on Exports. Licensee shall not export Jones Merchandise
from the Territory to any area outside of the Territory and shall not sell or
distribute Jones Merchandise to any person or entity that Licensee knows or has
reason to know intends so to export Jones Merchandise.
2.4 Resolution of Conflicts. Licensee recognizes that Jones has granted,
and may in the future grant, licenses to other parties to use the Mark or one or
more of Jones' other trademarks in connection with the manufacture, promotion
and distribution of wearing apparel, accessories or related items. If Licensee
or the licensee under any other such license notifies Jones of an existing or
potential conflict in definition of the merchandise covered by, or the rights of
the licensee under, their respective licenses and license agreements, Jones
shall endeavor to deal with the issue by discussions with authorized
representatives of
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the affected party, and Licensee shall fully cooperate in any such efforts.
Jones may at any time determine finally to resolve any such conflict by written
notice of its determination and resolution to the affected licensees, and all
such determinations shall be final and binding upon Licensee.
2.5 Reservation of Rights. Jones reserves all rights to the Mark
including, without limitation, all rights to use the Mark and to grant others
the right to use the Mark in any area and with regard to any product, except as
specifically granted and licensed to Licensee under this Agreement.
2.6 Covenant Not to Compete.
2.6.1 Jones shall not design, manufacture or sell Merchandise or
license the design, manufacture or sale thereof in the Territory in competition
with Licensee during the Term.
2.6.2 Licensee shall not, during or after the Term of this
Agreement, use designs or styles unique to Jones Merchandise on or in connection
with any other brand of product and will assign to Jones the beneficial
ownership of all rights that Licensee has acquired or may acquire in such
designs or styles upon expiration or termination of this Agreement.
III. Royalties
3.1 Percentage Royalty.
3.1.1 In consideration of the license granted and the services to be
performed by Jones under this Agreement and subject to Guaranteed Minimums,
Licensee shall pay to Jones Royalties equal to ( %) percent of the Net
Sales of all Jones Merchandise, in accordance with all the terms and conditions
of this Agreement.
3.1.2 Licensee shall be obligated to pay and account for Royalties
for all Jones Merchandise billed or shipped, even if the Merchandise improperly
bears the Mark or the applicable transaction is otherwise in breach or violation
of the terms of this Agreement; provided that this subparagraph 3.1.2 shall not
be considered to authorize such transactions and that the payment or obligation
to pay Royalties for such transactions shall not in any manner limit Jones'
right to terminate this Agreement or to exercise any other right or remedy that
Jones may have as a result of the breach of this Agreement by such transactions.
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3.2 Guaranteed Minimum Royalties.
3.2.1 Notwithstanding the amount of Royalties computed and payable
under Paragraph 3.1, the Guaranteed Minimum Royalties to be paid from Licensee
to Jones for each Annual Period during the Term shall be as follows: for the
First Annual Period, the amount of $ ; for the Second Annual Period, the
amount of $ ; and for the Third Annual Period, the amount of $ .
3.2.2 Guaranteed Minimums for each Annual Period shall be paid as
follows:
First Annual Period:
$ contemporaneously with the execution of
this Agreement;
$ on or before April 1, 1993;
$ on or before July 1, 1993; and
$ on or before October 1, 1993.
Second Annual Period:
$ on or before January 1, 1994;
$ on or before April 1, 1994;
$ on or before July 1, 1994; and
$ on or before October 1, 1994.
Third Annual Period:
$ on or before January 1, 1995;
$ on or before April 1, 1995;
$ on or before July 1, 1995; and
$ on or before October 1, 1995.
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Fourth Annual Period (First Renewal Term):
$ on or before January 1, 1996;
$ on or before April 1, 1996;
$ on or before July 1, 1996; and
$ on or before October 1, 1996.
Fifth Annual Period:
$ on or before January 1, 1997;
$ on or before April 1, 1997;
$ on or before July 1, 1997; and
$ on or before October 1, 1997.
For purposes of computation of Royalties, Guaranteed Minimum payments shall be
considered as advances against Royalties otherwise payable in the same Annual
Period, but Guaranteed Minimums shall not be carried forward to any subsequent
Annual Period and shall not, under any circumstances, be repayable or refundable
to Licensee.
3.3 Payment and Periodic Reports. Royalties shall be paid, without set-off
or deduction for any reason, and accounted for quarterly, within twenty-five
(25) days after the end of each quarter. At the time each Royalty payment is
due, Licensee shall deliver to Jones a statement signed and certified as
accurate by Licensee's chief financial officer or by another officer or official
of Licensee, approved by Jones in advance in writing, accounting for the Net
Sales and Royalties for the applicable quarter. Such statement shall show the
total amount of gross sales of all Merchandise billed or shipped during the
quarter; an itemized list of any amounts which may, under this Agreement, be
deducted from gross sales for computing Net Sales; a computation of the amount
of Royalties payable on account of the Net Sales for the quarter; advertising
expenditures under Paragraph 4.6 during the quarter; and such other information
including, without limitation, customer and financial information and reports,
as Jones may reasonably require. At Jones' request, Licensee shall provide the
foregoing information on a customer-by-customer basis. Jones may, at any time,
provide Licensee with a standarized form for accounting for Royalties and
Licensee shall use any such form for the statements under this paragraph. The
statements provided for in this paragraph shall be furnished to
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Jones whether or not Licensee has sold, shipped or billed any Jones Merchandise
during the quarter for which the statement is due.
3.4 Annual Reports. Not later than forty-five (45) days after the end of
each Annual Period, Licensee shall deliver to Jones a statement, signed and
certified by Licensee's then regularly engaged independent certified public
accountant (or, if Licensee has no such regular engagement, by a reputable
independent certified public accountant) stating for the Annual Period the
information required in the quarterly statement under Paragraph 3.3 and such
other information as Jones may reasonably request within a reasonable time prior
to the date on which the statement is due.
3.5 Books and Records and Audit.
3.5.1 Licensee shall prepare and maintain, in accordance with
generally accepted accounting principles consistently applied, complete and
accurate books of accounts and records covering all transactions arising out of
or relating to this Agreement, which books and records shall at least be in
sufficient detail to permit Jones to monitor compliance by Licensee with all of
its obligations under this Agreement. Jones and its duly authorized
representatives shall have the right, upon five (5) days prior written or oral
notice, during regular business hours, throughout the Term and for three (3)
years thereafter, to audit such books of account and records and to examine all
other documents and materials in Licensee's possession or control relating to
this Agreement and Licensee's performance hereunder. Licensee shall maintain
such books of account, records and documents and material available for Licensee
for at least three (3) years after the termination of this Agreement. Except as
provided in subparagraph 3.5.2, any audit under this Paragraph shall be at
Jones' expense.
3.5.2 If any audit of Licensee's books and records by Jones under
subparagraph 3.5.1 discloses that the payments made by Licensee to Jones during
the period covered by the audit were up to ( %) percent less than the
payments that should have been made under this Agreement, Licensee shall pay the
deficiency, plus interest at a rate equal to ( %) percent above the rate
announced by Citibank as its "Prime Rate", within fourteen (14) days after
demand therefor by Jones. If an audit shows that the amount paid by Licensee was
more than ( %) percent less than the amount which should have been paid, the
interest payable shall be at a rate of five (5) percentage points above such
Prime Rate and Licensee shall, in addition, reimburse Jones for all costs of the
audit within fourteen (14) days after demand by Jones.
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IV. Performance
4.1 Performance Standards.
4.1.1 Throughout the Term, Licensee shall use its best effort and
cause its officers, employees, agents and contractors to use their best efforts
to sell the maximum quantity of Jones Merchandise, promote business for Jones
Merchandise and enhance the value and reputation of the Mark, consistent with
good business practices and the high standards and prestige represented by the
Mark. Jones recognizes that Licensee does, and during the Term, will continue to
manufacture and sell other lines of eyewear, to wit, "Sarah Coventry", "Diane
Freis" and "Playskool", and Licensee agrees that the continuation of such lines
will not interfere with its performance under this agreement and particularly
the provisions of this subparagraph 4.1.1.
4.1.2 In the use of the Mark and all other aspects of the
performance of this Agreement, Licensee shall at all times comply with all
applicable laws and regulations including, without limitation, all laws and
regulations related to the manufacture, sale, labeling, packaging, distribution
and advertising of Jones Merchandise sold within the Territory.
4.2 Abandonment. If Licensee shall fail to use the Mark in the manufacture
and sale of opthalmic eyewear or sunglasses or eyewear accessories within any
period of six (6) months or if Licensee shall determine or state in writing its
intention to cease so to use the Mark, Licensee shall be deemed to have
abandoned the use of the Mark, and Jones may at any time thereafter terminate
this Agreement by written notice under subparagraph 8.3.1. The parties
acknowledge that the abandonment of the use of the Mark by Licensee will
irreparably damage Licensee's capacity to use the Mark under the terms of this
Agreement and, for purposes of termination under Article VIII, abandonment of
the use of the Mark under this paragraph shall be considered a breach or
violation of this Agreement which is not curable.
4.3 Restrictions on Promotionals. Licensee shall not, without the prior
written consent of Jones, give away any Jones Merchandise (other than point of
display items) or market, sell or distribute any Jones Merchandise as a premium
or in connection with any tie-in or promotional campaign for any product or
products (except Jones Merchandise).
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4.4. Quality.
4.4.1 The materials and workmanship of, and Packaging and sales and
promotional materials for, the Jones Merchandise shall at all times be of high
quality, and the Jones Merchandise shall at all times be designed, manufactured,
distributed and promoted in a manner appropriate for the high quality of such
Jones Merchandise.
4.4.2 Jones and its duly authorized representative shall have the
right, during normal business hours upon reasonable advance notice, to inspect
any facility used by Licensee in connection with the manufacture of Jones
Merchandise or the manufacture or production of Packaging or advertising or
promotional material in order for Jones to monitor the quality of the Jones
Merchandise and Packaging and promotional materials and Licensee's compliance
with all other terms of this Agreement which relate to such manufacture and
production.
4.5 Advertising.
4.5.1 Until such time as Jones institutes a national advertising
program, Licensee shall, during each Annual Period, expend not less than
( %) percent of the amount of the aggregate Net Sales for the Annual Period for
advertising, in promoting Jones Merchandise in communications media, national
consumer publications, trade press, store promotional mailings or advertising
campaigns and store point of display items. Licensee shall comply with any
reasonable guidelines established by Jones for advertising activities and
expenditures. If, notwithstanding Licensee's good faith effort, the amount
expended by Licensee for an Annual Period is less than ( %) percent of the
Net Sales for the Annual Period, the difference shall, at Jones' option, either
be added to Licensee's required advertising expenditures for the next Annual
Period or be paid to Jones within the earlier of thirty (30) days after the
delivery to Jones of the annual report for the Annual Period under Paragraph 3.4
or ninety (90) days after the end of the Annual Period.
4.5.2 If, at any time during the Term, Jones institutes a national
advertising program, Licensee shall participate to the extent reasonably
required by Jones in such national advertising program, the contribution to same
by Licensee not to exceed ( %) percent of the aggregate Net Sales for the
Annual Period.
4.6 Approvals. Licensee shall not in any aspect of its performance under
this Agreement use any materials, designs, styles, fits or workmanship for
Jones Merchandise or use any items of Packaging or advertising or promotional
materials which Jones has not approved under the terms of this Agreement, which
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approval is not to be unreasonably withheld by Jones. Jones' Approval or
disapproval of any item or matter for purposes of this Agreement may be based
solely on Jones' subjective standards and Approval may be given or withheld in
Jones' sole discretion, provided that Jones shall act in good faith.
V. Designs, Samples and Packaging
5.1 Designs. Jones and Licensee shall cooperate in such manner as Jones
may approve in the development and creation of designs, styles and design and
style ideas for each collection of Jones Merchandise. All designs, styles,
patterns, photographs or ideas for Jones Merchandise provided by Jones to
Licensee or approved by Jones for purposes of this Agreement shall be the
exclusive property of Jones, and Licensee shall not use any of the foregoing
except for the manufacture, distribution and sale and advertising and promotion
of Jones Merchandise in accordance with the terms of this Agreement.
5.2 Samples. Licensee shall submit to Jones, free of charge, samples of
each item of Jones Merchandise within a reasonable time prior to the
commencement of production of the item for sale and distribution, but not later
than thirty (30) days prior to the scheduled first showing of the collection of
Jones Merchandise which includes the item. Licensee may, after the production
and distribution of the first collection of Jones Merchandise under this
Agreement, suggest procedures for representative samples, subject to continuing
inspections under Paragraph 5.4, and Jones shall consider and respond to any
such request in good faith but shall not be required to approve any such
procedures. Licensee may not sell or distribute any item of Jones Merchandise
unless Jones has approved the sample for the item in advance. In furtherance of
the foregoing, Licensee shall provide to Jones, on an annual basis, a schedule
reflecting the dates of collection showings with an indication as to when the
Jones Merchandise scheduled to be shown will be available for inspection by
Jones prior thereto.
5.3 Packaging. To the extent reasonably feasible, the samples provided
under Paragraph 5.2 shall include all tags, labels and other items of Packaging
that relate to, or that Licensee intends to use with, the item submitted as a
sample. Licensee shall submit to Jones samples of all other items of Packaging
within a reasonable time prior to the commencement of the production of such
items for use with Jones Merchandise. Jones shall not unreasonably require
Licensee materially to change labels, tags or other significant items or
Packaging from collection to collection.
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5.4 Continuing Inspection. Upon Jones' request at any time and from time
to time, Licensee shall submit to Jones a reasonable number of production
samples of items of Jones Merchandise or Packaging material in order for Jones
to monitor production in accordance with Jones Approvals, quality standards and
other requirements of this Agreement. If Jones notifies Licensee in writing of
the disapproval of any production sample, Licensee shall immediately take such
action as may be necessary for the item to meet Jones Approval and cease
production and distribution and sale of the item pending Approval. Jones shall
not unreasonably disapprove any production sample under this paragraph.
VI. Trademark and Trademark Protection
6.1 Ownership.
6.1.1 Licensee acknowledges that, as between Jones and Licensee,
Jones is the owner of all right, title and interest in and to the Mark in any
form or embodiment and is also the owner of the good will attached or which
shall become attached to the Mark in connection with the business and goods in
relation to which the same has, is or shall be used. Sales by Licensee shall be
deemed to have been made for purposes of trademark registration, and all uses of
the Mark by Licensee shall inure to the benefit of Jones.
6.1.2 At Jones' request, Licensee shall execute any documents,
including registered users agreements, reasonably required by Jones to confirm
Jones' ownership of all rights in and to the Mark in the Territory and the
respective rights of Jones and Licensee under this Agreement. Licensee shall
cooperate with Jones in connection with the filing and prosecution by Jones of
applications in Jones' name relating to the use of the Mark for Merchandise in
the Territory.
6.1.3 Licensee shall never challenge or encourage anyone to
challenge Jones' ownership or the validity of the Mark or any application for
registration thereof or any trademark, copyright or other registration thereof
or any rights of Jones therein.
6.2 No Adverse Acts. Licensee shall not, at any time or in any manner,
knowingly engage in any activity or do or permit any act which may in any way
adversely affect any rights of Jones to the Mark or any registrations or
applications for registration thereof or which may directly or indirectly reduce
the value of the Mark or derogate or detract from its repute.
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6.3 No Secondary Marks. Licensee shall not use any other trade names,
trademarks or other designations (including, without limitation, Licensee's own
corporate name or trade name) in connection with the Mark in any advertising,
publicity, labeling, Packaging or printed matter utilized by Licensee in
connection with Jones Merchandise. Licensee shall not join the Mark with any
other names or marks to form a new mark and shall not itself use the Mark as a
corporate name or trade name or in any other manner other than in connection
with the manufacture, distribution, sale and promotion of Jones Merchandise
under this Agreement.
6.4 Trademark Notices. Licensee shall cause the designation "R" to appear
immediately after, on the upper right, of the Mark on all Packaging and
advertising and promotional material and shall, in addition, cause to appear on
all Packaging and advertising and promotional materials and on all forms,
invoices, stationary, business cards and other documents and materials of any
kind bearing the Mark such designations, legend, or markings or notices as may
be necessary, or as Jones may require, to give notice of the status of the Mark
and Jones' rights and interests therein.
6.5 Copyrights. Any copyright that may be created by statute, common law
or otherwise in any design, sketch, print, Packaging or similar matter shall be
the sole property of Jones. Licensee shall take such action as may be necessary
or as Jones may require to confirm, preserve or protect such copyright,
including placing of copyright notices on the appropriate items. Licensee shall
not claim for itself or for any party other than Jones copyrights in any such
items and shall not file or attempt to file any copyright registrations
therefor.
VII. Warranties, Indemnification and Infringement
7.1 Warranties.
7.1.1 Jones represents and warrants to Licensee that Jones has the
full right, power and authority to enter into this Agreement and to grant the
rights, licenses and privileges granted by Jones hereunder to Licensee and to
perform all of Jones' obligations hereunder.
7.1.2 Licensee represents to Jones that Licensee has the full right,
power and authority to enter into this Agreement and to perform all of its
obligations hereunder.
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7.2 Indemnification by Jones. Jones shall indemnify, defend and hold
harmless Licensee from and against any and all claims, causes of actions, suits,
damages and expenses (including reasonable attorneys' fees and expenses) arising
out of any claim that Licensee's use of the Mark in accordance with the terms of
this Agreement constitutes an infringement of a valid trademark in the
Territory, upon Licensee giving Jones prompt written notice and authority and an
opportunity to undertake and fully conduct the defense thereof.
7.3 Indemnification by Licensee and Insurance.
7.3.1 Licensee shall indemnify, defend and hold harmless Jones from
and against any and all claims, causes of action, suits, damages and expenses
(including reasonable attorneys' fees) which Jones may incur or for which it may
become liable or required to pay by reason of any defect or alleged defect in
any Jones Merchandise; the breach by Licensee of any provision of this Agreement
or of any of Licensee's duties hereunder; or the acts or omissions of Licensee
or of any of its servants, agents, employees or contractors in connection with
the performance of this Agreement (excluding matters covered by Paragraph 7.2).
7.3.2 Licensee shall, at its own expense, obtain and maintain
throughout the Term in full force and effect with an insurance carrier
acceptable to Jones, products liability insurance with a limit of liability of
not less than $ , insuring against, without limitation, all damages,
profits, interest, attorneys' fees, costs and expenses arising out of any suit
or legal proceeding, claim or demand resulting from a defect or alleged defect
in any item of Jones Merchandise or out of the use or condition of an item of
Jones Merchandise. Such insurance policy shall name Jones as a co-insured and
shall provide for at least thirty (30) days advance written notice to Jones
before cancellation or substantial modification. Licensee shall promptly deliver
a certificate of such insurance to Jones and, if Jones so requests, a copy of
the policy for such insurance. The obligation of this subparagraph with respect
to insurance shall not be deemed to limit in any manner the indemnification
obligations of Licensee under subparagraph 7.3.1.
7.4 Infringements. Licensee shall promptly notify Jones in writing of any
known or suspected infringements of the Mark or of any copyright or other rights
or property of Jones, promptly after the same comes to Licensee's attention.
Jones shall have the sole and exclusive right to take action or institute
proceedings with respect to such infringement, and shall proceed as it may, in
its sole discretion, deem appropriate or desirable.
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Licensee shall cooperate in any action or proceeding by Jones with respect to an
infringement or suspected infringement in such manner as Jones may request.
VIII. Term and Termination
8.1 Initial Term. The initial term of this Agreement ("the Initial Term")
shall commence upon execution of this Agreement and end on December 31, 1995,
subject to earlier termination as provided in this Agreement and to renewal as
provided in Paragraph 8.2.
8.2 Renewal Term. If Licensee is not in default of any of the terms of
this Agreement, has complied with its obligations under this Agreement in all
material respects (without regard to whether Jones has given any notices of
default of failure to comply) and if it reasonably appears that Net Sales for
the last Annual Period of the Initial Term will exceed $ , Licensee
shall have the option, exercisable by written notice given to Jones not later
than six (6) months prior to the expiration of the Initial Term, to renew this
Agreement for a first renewal term ("First Renewal Term") of two (2) years,
beginning on January 1, 1996 and ending on December 31, 1997, subject to earlier
termination as provided in this Agreement.
8.3 Termination.
8.3.1 Jones may terminate this Agreement, effective immediately upon
giving Licensee written notice of termination, if (i) Licensee fails to make any
payment due to Jones under this Agreement when such payment is due and continues
such failure uncured for ten (10) days after written notice thereof from Jones
to Licensee, (ii) Licensee fails two (2) or more times during any Annual Period
during the Term to make any payment due to Jones within ten (10) days after such
payment is due, without regard to any notice of such failure from Jones, (iii)
Licensee abandons the Mark, as provided in Paragraph 4.2, (iv) the record or
beneficial ownership of Licensee or any of its parents or affiliates changes in
a manner so as to change the record, beneficial or actual control of Licensee,
or (v) Licensee defaults on any obligations secured by a security interest in or
other lien or encumbrance on Jones Merchandise.
8.3.2 Either Jones or Licensee may terminate this Agreement,
effective immediately upon giving the other party written notice of termination,
if (i) the other party breaches or fails to perform any of the terms or
provisions of this Agreement in a manner not provided for in subparagraph 8.3.1,
in any material respect and such breach or failure is not curable or, if
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curable, is not cured within twenty (20) days after written notice thereof from
the non-breaching party, or (ii) the other party files a voluntary petition or
proceeding in bankruptcy or under any federal or state bankruptcy or insolvency
or other law for the relief of debtors; consent to the appointment of a
receiver, custodian or liquidator for a portion of its business or property; has
filed against it and not dismissed within forty-five (45) days an involuntary
proceeding under any federal or state bankruptcy or insolvency or other law for
the relief of debtors or for the appointment of a receiver, custodian or
liquidator; makes an assignment for the benefit of its creditors; or ceases, or
admits its intention to cease, the manufacture, sale or distribution of Jones
Merchandise or the conduct of its business in the ordinary course.
8.4 Termination of Rights.
8.4.1 Upon the expiration or termination of this Agreement for any
reason whatever, all rights of Licensee under this Agreement shall terminate and
automatically revert to Jones. Licensee shall immediately discontinue all use of
the Mark and shall no longer have any right to use the Mark or any variation or
simulation thereof in any manner or for any purpose whatsoever. Licensee shall
transfer to Jones by such documentation as Jones may require all registrations,
filings, trademarks, copyrights and other rights with regard to the Mark which
Licensee may have possessed at any time. Subject to the provisions of Paragraph
8.6 concerning the sale of Termination Inventory, Licensee shall deliver to
Jones, without charge, all sketches, samples, designs or other matters relating
to Jones Merchandise and all Merchandise, Packaging materials and advertising
and promotional materials bearing the Mark in any form.
8.4.2 Upon termination or expiration of this Agreement for any
reason, including termination under Paragraph 8.3.2(ii), no trustee in
bankruptcy, assignee for the benefit of creditors, custodian, receiver, sheriff
or court officer or other successors to Licensee or its assets or business shall
have any right to continue this Agreement or to use or exploit the Mark in any
manner whatever.
8.4.3 Notwithstanding the provisions of subparagraph 8.4.2, in the
event that under the United States Bankruptcy Code or any amendment or successor
thereto (collectively the "Bankruptcy Code"), the trustee in bankruptcy of
Licensee or Licensee, as bankruptcy debtor, is permitted to and does assume this
Agreement and thereafter proposes to assign this Agreement by an assignment
which fulfills the applicable requirements of the Bankruptcy Code, other trustee
or Licensee shall notify Jones of the proposed assignment in advance, in
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writing, setting forth the name and address of the proposed assignee, the
proposed consideration for the assignment and all other material terms and
details of the proposal. Such notice shall be considered an offer to Jones to
have this Agreement assigned to Jones or to its designee for the consideration
(or its reasonable equivalent in money) and under the other material terms in
the notice. Jones may exercise the option and accept the offer by giving the
trustee or Licensee, as appropriate, written notice of exercise and acceptance
within twenty (20) days after Jones receives the notice from the trustee or
Licensee. If Jones fails to give notice and exercise the option within such
twenty (20) day period, the trustee or Licensee may complete the proposed
assignment, but only to the party and for the consideration and under the terms
described in the notice.
8.5 Termination Inventory. Within thirty (30) days after the expiration or
termination of this Agreement, Licensee shall prepare and deliver to Jones a
written Termination Inventory, including a complete and accurate schedule as of
the date of expiration or termination of all completed Jones Merchandise on
hand; Jones Merchandise on order; work in process relating to Jones Merchandise
on hand, including uncut piece goods and products and materials in the process
of manufacture; and all Packaging materials, advertising and promotional
materials and other documents or items that bear the Marks or Jones' name in any
form in Licensee's possession or control or in the process of manufacture for
Licensee. Jones shall have the option, exercisable within ten (10) days after
receipt of the Termination Inventory, to purchase all or any portion of the
items in the Termination Inventory for a purchase price equal to
( %) percent of Licensee's cost. Licensee shall deliver to Jones the items in
the Termination Inventory to be purchased, within five (5) days after receipt of
Jones' notice exercising its option to purchase, and Jones shall pay the
purchase price within thirty (30) days after receipt of all items of the
Termination Inventory purchased.
8.6 Termination Inventory Sales. For a period of six (6) months after the
expiration of Jones' option to purchase Termination Inventory under Paragraph
8.5, Licensee may sell finished Jones Merchandise in the remaining Termination
Inventory or finished Jones Merchandise completed from work in process in the
remaining Termination Inventory, on a non-exclusive basis, in accordance with
all of the terms of this Agreement. Royalties for all such sales shall be paid
and accounted for by Licensee within thirty (30) days after the end of such six
(6) month period. Any items in the Termination Inventory not sold and remaining
after the selling period provided for in this paragraph shall be delivered to
Jones, disposed of or destroyed in accordance with Jones' instructions.
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8.7 Subsequent License. Immediately upon the expiration or termination of
this Agreement for any reason, Jones shall have the free and unrestricted right
to grant other parties one or more licenses to use the Mark in connection with
the manufacture, sale and distribution or advertising and promotion of
Merchandise in the Territory or to enter into such other transactions as it
desires for the use of the Mark with Merchandise or in any other manner, without
any obligation of any kind to Licensee. The right of Licensee to sell items of
Termination Inventory under Paragraph 8.6 is non-exclusive only and shall not in
any manner limit Jones' rights to enter into other licenses or transactions.
8.8 Reservation of Rights. Notwithstanding any termination of this
Agreement, Jones shall have and hereby reserves all rights and remedies which
are granted or available to it under this Agreement or applicable law, and
termination shall not be deemed to be an exclusive remedy or to limit Jones in
any manner from enforcing any other rights or remedies.
IX. General Terms
9.1 Confidentiality. Jones and Licensee acknowledge that all information
and data which the parties have learned or will learn in connection with this
License Agreement and activities and transactions hereunder concerning the
business and operation of the parties and all tangible manifestations of such
information and data including, without limitation, designs, patterns, sketches,
business and marketing plans, customer lists, and financial and operating
reports constitute valuable proprietary confidential information and trade
secrets of the parties, and the parties shall not disclose any such data or
information or use any such data or information for themselves or any other
person or entity, except for the proper and authorized performance of this
Agreement in accordance with all of the terms hereof.
9.2 Arbitration.
9.2.1 Subject to the provisions of subparagraph 9.2.2, all disputes
arising under this Agreement or the obligations of the parties hereunder shall
be submitted to arbitration in New York, New York before a panel of three
arbitrators, in accordance with the then prevailing Rules for Commercial
Arbitration of the American Arbitration Association. The arbitrators in any such
arbitration shall award costs to the prevailing party and may, but shall not be
required to, award reasonable attorneys' fees. The decision of the arbitrators
shall be final and binding on all parties, except that the arbitrators shall
have no power to vary the terms of this
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Agreement. Judgment on the arbitrators' award may be entered in any court in the
State of New York or in any other court of competent jurisdiction.
9.2.2 The parties acknowledge that a breach of this Agreement
involving the improper or unauthorized use of the Mark or other matters may give
rise to irreparable harm pending the outcome of arbitration under subparagraph
9.2.1. Accordingly and notwithstanding the provisions of subparagraph 9.2.1,
either party may, upon a breach or threatened breach of this Agreement, bring an
action in a court of competent jurisdiction and apply therein for temporary or
preliminary injunctive or other equitable relief, pending resort to, and a
decision in, arbitration under subparagraph 9.2.1. If otherwise appropriate
under applicable law, a court may entertain any such action and grant injunctive
or equitable relief, and the provisions of subparagraph 9.2.1 providing for
arbitration shall not be construed to prevent the action or relief.
9.3 Assignability.
9.3.1 Jones may assign this Agreement to a successor to all or
substantially all of its business or the portion of its business which utilizes
the Mark, if the successor assumes all of Jones' responsibilities, obligations
and liabilities hereunder. Jones may, in addition, assign the right to receive
payments, but not any obligations, under this Agreement to a financial or
similar institution for purposes of financing, so long as Jones remains
responsible for all of its obligations hereunder.
9.3.2 This Agreement is personal to Licensee, and Licensee may not
assign, sublicense or otherwise transfer all or any portion of this Agreement or
any rights or obligations hereunder, whether voluntarily, involuntarily, by
operation of law or otherwise, and any such attempted assignment or other
transfer shall be null and void and of no effect.
9.4 Applicable Law. New York law shall govern the validity, construction,
interpretation and effect of this Agreement.
9.5 No Agency. Nothing contained in this Agreement shall be deemed or
construed as constituting the parties hereto as partners or joint venturers or
either party as an agent of the other and, without limiting the foregoing,
Licensee shall have no authority to bind or obligate or to incur any
indebtedness for Jones, and no such authority shall be implied.
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9.6 Failure to Exercise Rights. The failure of either party to act or
exercise any right under this Agreement, upon the breach of any of the terms
hereof, or otherwise, shall not be construed as a waiver of such breach or as
preventing either party from thereafter enforcing strict compliance with any and
all of the terms hereof.
9.7 Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such provision shall be considered severable, and the
remaining provisions of this Agreement shall continue in full force and effect
and shall be valid and enforceable to the fullest extent permitted by law.
9.8 Entire Agreement. This Agreement contains the entire understanding
between the parties, no other representations or covenants having induced either
party to execute this Agreement. This Agreement and obligations and duties under
this Agreement may not be amended or modified in any manner, in whole or in
part, except by a written agreement or amendment or modification duly executed
by the party to be charged.
9.9 Headings. The Article and paragraph headings of this Agreement are for
convenience of reference only and do not form a part of the covenants, terms or
conditions of this Agreement or give full notice thereof.
9.10 Notices. All notices, reports, statements, exercises of options or
other communications required or permitted under this Agreement shall be in
writing and shall be sufficiently given only if personally delivered; mailed by
registered or certified mail, return receipt requested; sent by overnight
express courier, with written receipt of delivery; or transmitted by telecopier
and confirmed by first class mail within twenty-four (24) hours. All notices
shall be sent or delivered to the following addresses or to such other addresses
as either party may, by notice direct:
If to Jones: Jones Investment Co., Inc.
300 Delaware Avenue - Suite 534
Wilmington, Delaware 19801-1622
Attn: Norman J. Shuman
with copies to: Jones Apparel Group, Inc.
1411 Broadway - 21st Floor
New York, New York 10021
Attn: Herbert J. Goodfriend
If to Licensee: Diplomat-Ambassador Eyewear Group
4211 Van Kirk Street
Philadelphia, Pennsylvania 19135
Attn: Barry Budilov
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with a copy to: Alan Escott, Esq.
Suite 405
1500 Walnut Street
Philadelphia, Pennsylvania 19102
Notices given by mail shall be deemed given on the second business day after the
date on which they are mailed. All other notices shall be deemed as given on
receipt.
IN WITNESS WHEREOF, the parties, each by their duly authorized
representative, have executed this License Agreement as of the date first above
written.
JONES INVESTMENT CO., INC.
By: /s/ Norman J. Shuman
---------------------------------
Norman J. Shuman
Vice President
DIPLOMAT-AMBASSADOR EYE GROUP
By: /s/ Barry Budilov
---------------------------------
Barry Budilov
President
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Exhibit 10.32
MEMORANDUM OF AMENDMENT
This is an Amendment to that certain License Agreement dated January 1,
1992, as previously amended, between HASBRO TOY GROUP, a division of Hasbro,
Inc., with its principal place of business at 1027 Newport Avenue, Pawtucket,
Rhode Island 02862-1059 ("Licensor") and Diplomat Optical Company, to which
DIPLOMAT-AMBASSADOR, INC., is successor-in-interest, with its principal place of
business at 4211 Van Kirk Street, Philadelphia, Pennsylvania 19135 ("Licensee").
RECITALS:
A. Pursuant to the License Agreement, Licensor granted a license to
Licensee to manufacture, distribute, promote and sell certain products, sold in
association with the trademark "PLAYSKOOL." Capitalized terms used in this
Agreement and not otherwise defined shall have the meanings given to such terms
in the License Agreement
B. Licensor and Licensee desire to modify and amend the License Agreement.
AGREEMENT:
In consideration of the mutual covenants and agreements in the License
Agreement and this Amendment the parties agree as follows:
1. The Term of the License Agreement is hereby renewed for an
additional three-year period commencing January 1, 1996 and
continuing through December 31, 1998 ("Second Renewal Term").
2. The Royalty Rate for the Second Renewal Term is % of Net Sales.
3. Licensee guarantees that, for sales of the Licensed Articles during
the Second Renewal Term referenced above, Licensee shall pay
Licensor not less than United States Dollars ($ ) payable
as follows:
$ due by December 15, 1996
$ due by December 15, 1997
$ due by December 15, 1998.
4. If Licensee's sales exceed United States Dollars
($ ) during the Second Renewal Term, and all other terms
and conditions of the License Agreement are satisfied, Licensee may
renew the Term of the License Agreement for an additional two-year
period commencing January 1, 1999 and continuing through December
31, 2000 ("Third Renewal
Word Processing Document No. 672-A3. JHM/DDM. Drafted 11/8/95. (C) 1995 Hasbro,
Inc. All rights reserved. This document shall not be deemed an offer and shall
not be binding unless signed by all parties.
<PAGE>
Term"). The Royalty Rate for the Third Renewal Term will be % and the
Guarantee will be United States Dollars ($ ) payable as follows:
$ due by December 15, 1999
$ due by December 15, 2000.
5. Except as specifically modified or amended by this Agreement, all of
the terms and conditions of the License Agreement are unmodified and
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands this ____
day of November, 1995.
HASBRO TOY GROUP, DIPLOMAT-AMBASSADOR, INC.
a division of Hasbro, Inc.
By: /s/ S. Hartley By: /s/ Barry Budilov
--------------------------- ---------------------------------
Title: General Manager Title: President
2
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form SB-2 of
our report dated June 12, 1997 (June 30, 1997 with respect to the last
paragraphs of Notes F and H(1) on the financial statements of Ambassador Eyewear
Group, Inc. as at March 31, 1997 and for the period May 3, 1995 (inception)
through March 31, 1996 and for the year ended March 31, 1997. We also consent to
the inclusion in this Registration Statement on Form SB-2 of our report dated
June 12, 1997 on the financial statements of Renaissance Eyewear, Inc. as at
October 31, 1996 and for the year then ended. We also consent to the reference
to our firm under the caption "Experts" in the Prospectus.
Richard A. Eisner & Company, LLP
New York, New York
July 11, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form SB-2 being filed by Ambassador Eyewear Group, Inc. of our report dated
December 22, 1995 on the combined financial statements of Renaissance Eyewear,
Inc. for the year ended October 31, 1995. We also consent to the reference to
our firm under the caption "Experts" in the Prospectus of the Registration
Statement.
/s/ J. H. COHN LLP
--------------------------------------
J. H. COHN LLP
Roseland, New Jersey
July 11, 1997
